I’m beginning to think that silver is never coming back against gold, or even the flimsy old fiat dollar for that matter. On the investor side, people have stubbornly stayed away from stacking silver and probably due the nasty fingerburning received in 2010. On the industrial side, no prizes for guessing what happens to demand in our new Covid-19 world.
But it’s the supply side that has changed the market. No matter what the idiot permabull silverbugs may claim, there is an glut of silver and the physical oversupply is from the big base metals miners, e.g those with massive skarn or
porphyry copper deposits in the Andes who suddenly started paying
attention to their rather minor by-product credit a few years ago when the streamer companies offered serious money for something they’d taken for granted until then. Take for example the stream deal between Teck and Franco-Nevada
on Teck’s attributable 22.5% of silver production from the massive
Antamina mine in Peru. FNV paid $610m upfront and then pays 5% of spot
for Teck’s part of silver production. In 2019, Antamina produced 15,849,298 oz silver (not equivalent, nothing to do with the other metals in produces in very large quantities, only silver), so FNV got 3,566,092oz of silver and paid an average of 81c per ounce. Not a bad business and to keep to one year and one country, Southern Copper produced 5.63m oz silver from its copper operations in Peru (Cuajone and Toquepala) and Chinalco produced 6.65m oz silver from Toromocho in Peru. There you have millions of ounces of silver that would not have come out the ground if it weren’t for the main base metals targets of each mine and as the cost basis for the big miners is basically zero, they were naturally interested when other businesses came knock on the door three or five years ago offering very large cheques for that silver (in fact, 2/3rds of all silver produced now comes as a by-product credit to another metal, normally copper, gold or zinc). In other words, the irony is that Wheaton Precious Metals has poisoned its own chalice, but who was to know back then, right Randy?
porphyry copper deposits in the Andes who suddenly started paying
attention to their rather minor by-product credit a few years ago when the streamer companies offered serious money for something they’d taken for granted until then. Take for example the stream deal between Teck and Franco-Nevada
on Teck’s attributable 22.5% of silver production from the massive
Antamina mine in Peru. FNV paid $610m upfront and then pays 5% of spot
for Teck’s part of silver production. In 2019, Antamina produced 15,849,298 oz silver (not equivalent, nothing to do with the other metals in produces in very large quantities, only silver), so FNV got 3,566,092oz of silver and paid an average of 81c per ounce. Not a bad business and to keep to one year and one country, Southern Copper produced 5.63m oz silver from its copper operations in Peru (Cuajone and Toquepala) and Chinalco produced 6.65m oz silver from Toromocho in Peru. There you have millions of ounces of silver that would not have come out the ground if it weren’t for the main base metals targets of each mine and as the cost basis for the big miners is basically zero, they were naturally interested when other businesses came knock on the door three or five years ago offering very large cheques for that silver (in fact, 2/3rds of all silver produced now comes as a by-product credit to another metal, normally copper, gold or zinc). In other words, the irony is that Wheaton Precious Metals has poisoned its own chalice, but who was to know back then, right Randy?
The Gold/Silver Ratio has absolutely refused to bend to the will of the half-brained “it’s always been like that” calls from those with feet of clay and is now edging 100X (in fact it touched the number on Monday evening). Silver is not gold and we know through experience that it will now sell off hard into an industrial downturn (and gold will not). If your silver exposure is via juniors that struggle to turn a profit at $17/oz Ag or is an exploreco with a thin looking treasury, it’s time to run away now. Silver is for speculative risk trades, not for times when you batten down the hatches.