Posts Tagged ‘Ray De Motte’

Can mining supply of silver fulfil global needs?

Monday, June 8th, 2009

In our previous article, How much has the silver stockpile been depleted?, we wrote about the depleted supply of government silver stocks. Today, we will look at the mining supply of silver.

The first question to ask is, if there is little silver, why don’t miners just mine more silver?

Well, the first problem is that most mined silver does not come from silver mining operations. Around 75% of mined silver comes as a by-product of mining other metals like copper, lead, zinc and gold. The silver is a ‘bonus’ to those miners. Therefore, what is the implication? These miners will not increase mining copper, lead, zinc and gold just to take advantage of any rise in silver prices. Their businesses are not dependent on silver prices. For example, if a copper miner gets 1 percent of its income from silver, it’s not going to dig up ten times more copper to increase its silver production of silver by ten times. So, the burden of increasing silver production falls on miners who mine silver as their primary metal. These miners are a rare breed. They produce only 125 million ounces per year, which is 25% of silver mine production.

The next question is, why don’t more silver mines be opened?

As we said before in Real economy suffers while financial markets stuff around with prices, starting a mine from scratch is an extremely capital intensive project that can take up to several years. Including strict environmental laws, the process can take even longer. Not only that, with precious metals coming from the bottom of a secular bear market in around 2000, there is a severe shortage of workers with specialised knowledge required for mining operations.

Then there’s another problem with the supply of below ground silver. According to Ray De Motte, president of Sterling Mining, the ratio of minable silver to gold may be less than 8 to 1 today, compared to 12 to 1 in the past (that can explain the 12:1 historic silver:gold ratio- see What determines the gold-silver ratio?). Also, buried within the facts of reports by the United States Geological Survey (USGS), at the current rate of production, the two metals that will run out first are gold (30 years) and silver (25 years). Given that silver has much great industrial use than gold and assuming that its usage will increase along with the rise of China and India, it is likely to run out much sooner than gold.