Silver is money

October 20, 2022

 by James M. Wise, Shareholder at Pan American Silver Corp., First Majestic Silver Corp. & Newmont Corporation 

 Silver is money. It has been for thousands of years. The white metal was first widely, or most famously, distributed in the Roman coin called the Denarii. Subsequently, the Spanish empire had for centuries a currency based on the silver peso, while the British had the sterling pound. For 76% of the US history, the country had silver coins being minted and circulated until the government of President Lyndon B. Johnson halted its use in 1964. Today silver is held for investment purposes, but is also broadly used in jewelry, electroplating, photography to a diminishing extent, and industrial applications including use in solar panels. Considered a precious metal, silver is about eight times more abundant in the Earth than gold, but still remains an important primary ore in mining and has a role as credit in zinc, lead, and copper mines. And as in all post-Industrial Revolution expansion of mechanization and economy of scales, the amount of silver being produced has steadily been increasing. This is despite the extreme price swings that are prone to exaggerated lows and short speculative highs. 

A bar of silver

The silver price over the last several centuries was remarkably stable as many currencies were referenced to it along with gold. After the removal of the US dollar from the gold standard in 1971, known as the Nixon Shock, the price of silver climbed according to inflation but also had marked peaks pertaining to market speculation. The major peak in 1981 came from the well-known attempt by the Hunt brothers to corner the market. The metal price went through a long depression in the 1990s, such that in the year 2000 it was at USD 6 per ounce and many of the historic silver camps in Peru were closed. The post-Global Financial Crisis of 2008 saw an all-commodity ‘Supercycle’ that peaked in 2011 with silver price spiking up to USD 49.80 per ounce and averaged at USD 35.16 for the year. The average price retreated to USD 15.66, which in 2015 had many of the Peruvian mines working near a breakeven basis. The current price hovering around USD 20 per ounce is not much higher, inflation-adjusted, from the low price in 2015. The total world silver production throughout history comes to 58.2 billion ounces, which at USD 20 per ounce equals USD 1.16 trillion. 

120 years of silver production
A graph showing the nominal average annual price of silver in red compared to the annual global mining production (info from the Silver Institute and the US Bureau of Mines/USGS mineral yearbooks)

Silver comes from many geological deposit types, including low-sulfidation epithermal veins where it occurs with gold, often mixed in electrum. Silver is a significant credit recovered from porphyry copper concentrates, such as at the open pits of Cerro Verde (Peru), Chuquicamata (Chile), Escondida (Chile), Butte (US), Bingham Canyon (US), and Antamina (Peru). The metal is found in carbonate replacement deposits, which are abundant in Peru and Mexico, skarn systems and from sediment-hosted base-metal deposits such as those in Poland. In the near-surface weathering environment the silver minerals breakdown and reconstitute easily, such that silver also forms a native metal, which provided some of the early metal used across ancient societies. The Freiberg mines of Germany are particularly noted for their fine occurrences of horn silver, the natural, almost fibrous and twisty branches of silver. The main silver-bearing minerals, or silver sulfo-salts, are acanthite, argentite, argentiferous galena, cerargyrite, proustite, polybasite, tennantite, and tetrahedrite. 

In 2021, the top-producing silver countries were Mexico, China, Peru, Australia, and Poland. Global production totaled 822.6 million ounces. Both Mexico and Peru, over the last 400 years, typically have been the leading world producers of silver. The companies with the greatest production in this last year were Fresnillo, KGHM, Glencore, Newmont, and Codelco. The companies that are mainly silver producers, each with more than 10 million ounces of annual production, are Pan American Silver Corp., First Majestic Silver Corp., Silver Crest Metals, and Hecla Mining. The five largest silver deposits in the world are Potosi district or Cerro Rico of Bolivia with over 2 billion ounces mined (other recent estimates suggest it had over 3 billion ounces produced), Coeur d’Alene district of Idaho with a production of 1.2 billion ounces, Penasquitos deposit in Mexico with ~1.27 billion contained ounces, Rudna and Polkowice-Seinawa Kupferschiefer deposits in Poland each bearing 1 billion ounces of silver as a credit to the primary copper mineralization. Deposit sizes can be classified as those having greater than 1 billion ounces of silver being supergiants, between 1 billion and 500 million as giants, at less than 500 but more than 250 million as mid-tiers, and those below 250 million ounces as lower-tier or small districts. The world has over 500 silver mines, many of which fall into the smaller side of endowment. 

Example of horn silver from the Porco district, Bolivia
Example of horn silver from the Porco district, Bolivia

Exploration continues for silver, although it receives less media attention than gold, copper, and lithium these last few years. The Silver Sands discovery in Bolivia, held by New Pacific, has about 155.9 million ounces in its measured and indicated resource that is at a pre-feasibility stage. Other idle resources pending development and permitting is the massive Navidad 632.4 million ounce deposit (2022 M&I resource) in southern Argentina, controlled by Pan American Silver Corp, Pascua-Lama project in Chile holds some 675 million ounces of Ag in addition to the gold resource, and the Udokan porphyry occurrence in Russia with about 1 billion ounces of silver.

Some examples of exceptional 2021 drill intercepts of silver are worth considering because the number of ounces required is greater than those reported for gold projects or mines:

  • Brixton Metals Corp’s Langis project in Canada drill hole LM-20-133 intercepted 2 m @ 188 oz/tonne. 
  • Radius Gold Inc.’s Marcicela project in Mexico had in drill hole RSM103 3 m @ 92.5 oz/tonne. 
  • Silvercorp Metals Inc.’s La Yesca had in the exploration drill hole ZK081 3.3 m @ 53 oz/tonne. 
  • Vizsla Silver Corp.’s Panuco project in Mexico hit in hole CS-20-11 2.52 m @ 51 oz/tonne. 
  • Eloro Resources Inc.’s Bolivian project of Iska intercepted 8.11 m @ 32.9 oz/tonne in drill hole 11_C53_4.13.2021. 

In general, for underground vein mining, equivalent silver values require a minimum of 5 oz/tonne to be economic. This may be higher depending on country taxes, dewatering requirements, ground stability and mining method, or if the CapEx on a new operation needs to pay for a mill and equipment.

In conclusion, silver is a valuable commodity that contributes to the economics across numerous deposit types. The metal price tends to move, although not perfectly mirroring, the price of gold, and when it does, the percent change can be a couple of multiples of the gold price movement. While Reddit fans and hack cell phone investors have been hyping silver staking or hoarding, hoping for a social media movement for a market squeeze, the long-term outlook regarding silver is reliable given its thousands of years of use and finite character for supply as compared to the inflatable fiat currencies of today. We have numerous undeveloped large silver resources being held up for various social-political reasons and at the same time, relatively few new large deposits are being discovered. The upside on silver investing remains as a safe haven for monetary collapse and is suggested as being more exchangeable under said crisis than its golden big brother. 

Note:  The author holds shares in Pan American Silver Corp., First Majestic, and Newmont, amongst other non-silver mining companies; company name mentions are not investment recommendations.

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Issue 21 / 2022