Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
With gold prices continuing to shine as the fragile global economic recovery falters yet again, equally buoyant silver prices have given the mining industry considerable impetus to increase production. But that’s simply not happening.
The fact is that most silver production is a by-product of gold mining. And the increasing scarcity of sizeable new gold deposits has precipitated a global slide in output of around 5% per annum for nearly a decade. This has obviously impacted silver yields, too.
The situation has also been compounded by a decline in the number of stand-alone silver discoveries in recent years. As the low-hanging fruit has already been picked, major new silver finds tend to be buried deep and are harder to get at, which typically makes them more expensive to bring on-stream. Or they are in environmentally sensitive areas – which make their future prospects politically problematic. Others tend to be metallurgically challenged – which makes processing recoveries low as compared to gold.
Hence, readily accessible below-ground silver inventories in many mature mining jurisdictions are getting mined-out. This helps explain why the world’s two largest producers – Peru and Mexico – could only manage a paltry rise in output of 4.6% and 0.6%, respectively, in 2009, in spite of surging silver prices.
Such uninspiring numbers represent an all too familiar picture among the well-established silver producing nations. This is further illustrated by the fact that worldwide silver production (among market economies that report reliable output numbers) has remained more or less steady over the past three years in the 550 million ounce range.
However, at least one other Spanish-speaking emerging economy is rising to the challenge. Argentina posted a 55% jump in silver output in 2009 to 15.5 million ounces over the previous year. One of the world’s few remaining stable democracies that is mineral-rich but underdeveloped, this geographically large Latin American nation is set to continue to ramp-up its output in the coming years.
An unheralded player among the world’s silver producers, Argentina’s production profile for the next few years suggests that it will break into ranks of the top 10 producer nations. This is expected to happen as a number of new silver mines or silver-rich gold mines come on-stream.
The most significant to date is the Pirquitas mine, which was commissioned in 2009 with an initial output of only 1.1 million ounces. But the mine is on-track to accelerate output this year to 7 million ounces. Owned by Vancouver-headquartered Silver Standard Resources (TSX: SSO) (NASDAQ: SSRI), this mine is expected to generate some 10 million ounces a year once in full production – and for up to 14 years.
Among the more significant new mines to be built by the industry will be the long-awaited world-class Navidad primary silver deposit. With a scheduled initial output of around 5 million ounces annually, Vancouver-based Pan American Silver Corp. (TSX: PAA) (NASDAQ: PAAS) is hoping to begin monetizing this veritable basin of silver in 2013. At an estimated 450 million ounces in size, Navidad should emerge as the largest new contributor to Argentina’s growing silver output.
Then there’s Andean Resources (TSX: AND) in mining-friendly Santa Cruz Province, which is targeting a 2012 launch of its high-grade Cerro Negro gold-silver mine. An annual output of 3.5 million silver ounces is forecast, along with 250,000-300,000 of gold.
A number of other important silver-gold discoveries are also shaping up nicely. They include the Cerro Moro deposit, which is also in Santa Cruz Province. It is owned by another Vancouver-based junior, Extorre Gold Mines (TSX: XG), which benefits from a resource base of 27 million ounces of silver and one million ounces of gold. The company’s high grade Escondida Vein runs a bonanza silver grade of 805 grams per tonne (g/t), plus 18 g/t gold.
This is where the numbers become interesting. With nearly 45% of the deposit’s value reported as silver, a 10% rise in the silver price relative to gold could make this a viable silver mine.
There are 30 or so other known veins on the property. And one of them has already revealed 6 million ounces of silver so far. There may be more to come as this vein is reportedly wide ‘open’ (continuous) along trend. Extorre is also aggressively drilling at least half a dozen other veins – which management believes may further bolster the ‘bonanza grade’ silver potential of the property.
Not just an explorer, Extorre Gold Mines is targeting a production decision for its Cerro Moro deposit in the first part of 2011.
Despite Extorre and Andean being well ahead of the pack towards producer status, a growing number of other ambitious gold and silver explorers are aggressively working to build up their own early stage discoveries in Argentina. All of which aim to capitalize on a rising tide for gold and for the grey metal that Chinese investors refer to as “poor man’s gold.”
Indeed, historically high investment demand for both gold and silver, especially in Europe and the Far East, is continuing to firmly support their lofty spot prices. Meanwhile, silver consumption is being underpinned by its many industrial uses, which are entirely independent of silver hoarding for investment purposes.
A number of key 21st century applications such as solar panels and flat screen television panels are forecast to contribute strongly to heightened demand. Furthermore, the marketplace for semiconductors (microchips) – which are used in an array of portable electronic devices and other high-tech applications – is experiencing explosive growth.
Disclaimer: The principals of www.BNWnews.ca do not directly or indirectly own shares in any of the companies mentioned in this article.
Courtesy of www.BNWnews.ca
