By Jon Forrest Little
The quote and chart below come from Tavi Costa of Crescat Capital.
Mexico’s silver production is now seeing a double-digit annual decline for the first time in nearly a decade. Historical trends indicate that substantial contractions the new offering presented excellent investment opportunities in the metal. More importantly: consider that silver is currently at one of its most undervalued levels in history, especially relative to gold, as the gold/silver ratio currently stands at 85.
Mexico is the largest producer of silver, but domestic silver production has declined by almost 25% over the past two years. It’s shocking fall off the cliff in the production of money.
Now take into account the risk of contagion. Latin America fosters labor and environmental activism that may further interfere with mining activity. from Newmont (NO) The Peñasquito mine, also located in Mexico, just resumed production about two months ago. Recent trends in Peru, Chile and Panama, where social and environmental conflicts are mine closure.
Silver investors holding bullion today are in great shape, but that may be shortsighted. Silver is the essential mineral for Net Zero economies. Especially in hydrogen fuel cell cars, trucks, vans, ships, barges and ferries. Especially in satellites, robotics, AI, solar energy and other renewable energies like wind energy. There are over 10,000 other industrial applications (military, aerospace, healthcare, electronics, etc.). The United Nations Climate Change Conference has just met (COP 28), and everyone is interested in money-intensive renewable energy.
Let’s talk solar. For every gigawatt (‘GW) of solar power, 500,000 ounces of silver are used. This single manufacturing plant in Houston, Texas will use 1,500,000 ounces per year and just down the street is another plant using another 1,000,000 ounces per year.
Now let’s look at solar subsidies… Today, solar energy receives 300 times more federal subsidies than nuclear power!
According to Vince Lanci, “Mexico is also in the process of gently nationalizing its remaining money. BRICS countries are now increasingly restricting the G7’s access to their remaining resources.” The situation in Mexico is particularly dire. As the world’s largest producer of silver, Mexico has recorded an average annual production of 5,600 tonnes over the past decade. Unfortunately, its resource reserves fall to just 37,000 tonnes in 2020. If mining continues at the current rate, the country’s reserves will be exhausted by the end of 2026.
The price of silver is too low relative to the overall cost of mining
Most AISC models do not account for the entire capital flight devoted to exploration and advancement. Huge costs associated before the first excavator starts. In many projects, the cost of producing silver now exceeds $24 per ounce. This figure will continue to rise due to rising labor and diesel costs. This does not take into account the risk involved, with Mexico most likely to maximize the fact that BRICS devours money on a monetary level while NATO devours money on an industrial level. Mexico is right in the middle of this geopolitical tug of war and will find creative ways to increase the “above ground” cost. Additionally, workers know how to engage environmentalists, and vice versa. Expect strikes in these prolific silver mining districts.
When you add up all the important milestones in energy, exploration, personnel, drilling, equipment, administration, insurance, analysis, testing, permitting and advancement of mineral resources… Now, miners are potentially losing money when considering an adjusted minimum of $25.75 per ounce (all-in adjusted). Cost factors take into account pre-production costs such as exploration and advancement).
Is it sustainable? I do not think so.
Editor’s note: The summary bullet points in this article were chosen by the Seeking Alpha editors.