Re: Barclays' Silver Desperation
in response to
by
posted on
Sep 27, 2008 11:03AM
Golden Minerals is a junior silver producer with a strong growth profile, listed on both the NYSE Amex and TSX.
Hi Guys!
On the topic of silver supply, I would point out that a couple of years ago analysts were calling for a glut of gold production, once the price surpassed $500 per ounce. Instead, what we have seen is lower gold production from the major gold districts of the world, despite gold reaching twice that price, and despite the renewal of exploration interest an the revival of many projects.
People have been calling for higher silver production for many years as well. Lets take a look at that. About three quarters of all silver produced comes as a by-product of mining for other metals like gold and zinc. Now that base metals are going through a protracted slump, some mines are going offline. That would include the Galmoy mine operated by Lundin for example, and the company announced yesterday that the mine will be closing, meaning that about 130,000 ounces of silver delivered as a by-product will disappear. About 330,000 ounces of silver production disappeared when Sterling Mining announced last month that they are discountinuing operations due to higher costs. There are many such mine closings that have been announced, and many more coming, and each will take a chunk of silver production off the market.
Another fact to consider is that many mines do not produce silver dore bars, but in fact deliver a silver concentrate. This must be processed at a smelter in order to get silver that can be refined and delivered. In Mexico, currently the largest silver producing nation, all of the smelters are running flat out. There are new mines that have production in progress but they cannot get their concentrate processed and so that is not going to add to the supply of silver production. How many other projects are shut-in or awaiting other processing options?
Given all the hurdles to get a new mine up and running, I think that the higher prices for silver will not result in an immediate glut of silver production as so many analysts have forcast. My guess is that the increases in production will barely replace what is lost through depletion from existing mines. Delays and bottlenecks will strangle new supply for a long time to come.
I also think we are facing an imminent delivery failure and that will really put the cat among the pigeons. If people think demand is brisk now, try and think of how much more urgent the buying will be when news comes out that there is not enough silver around to meet the commitments already forward sold.
cheers!
mike