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Peak Copper Means Peak Silver

By: Charleston Voice

-- Posted 29 December, 2005 | | Source:

We've all heard and read of "peak oil". We know what that means: the world's supply of fossil fuels (oil) has "tipped" and is now heading down the other side of a supply bell curve (US domestic production peaked in 1970). There are no reasonable alternatives to replace oil which has served mankind for a hundred years, or since 1859 when Drake got the first gusher on his Pennsylvania farm. We've had it good. We've been blessed.
Thinking about this event should give us "silver bugs" something to think about. The primary source of silver is as a by-product of copper, lead and zinc mining. Those mines dig up 70% of our silver supply. That's fine and dandy except what happens if copper becomes so expensive to mine that mines are unable to dig deeper as needed to reach the more difficult deposits? The graph below is from a pdf file which can be read in complete form here. In that report is stated "Major copper discoveries since 1998 fall short of production". Why?

Just as gold miners have cast their geologists to the wind and pretty much eliminated their support structures to find and develop new properties, so haven't the copper miners. Now "they're" worried about a supply 'pinch' in 2006. Chile's Codelco, the world's largest copper producer is threatening a strike without greater worker compensation. Worldwide 'inflation' is here with a vengeance. Workers are demanding their "fair share". Expect to see more of these labor disruptions around the world in the years to come.
At one time, and as recently as 1980, the South African gold mines produced about 70% of the world's gold. They have the deepest mines in the world, and the deeper they dig, the more costly it becomes. I read somewhere that 26% of Newmont's expenses were directly attributed to energy costs. Other mining, such as copper, have to be experiencing similar cost escalations as we rush to oil depletion with rising energy costs.
If we are to believe (which I do) that higher oil and energy prices are with us until depletion, why not higher copper prices? In fact, as our world has run on "cheap oil" which is no longer cheap or as plentiful, why not higher everything? Oil is the blood in our economic veins.
If copper discoveries are declining as illustrated to the right, that means less silver reserves will be set aside, too. A silver price of say, US$150 an ounce, may tickle a copper miner's fancy, but it won't be an incentive to increase their production of their mainstay, copper. I believe this Barrick/Placer merger is one of survival for both. Our oil companies have been merging and buying each other out for twenty years now as no new major oil discoveries have been found. The 30% balance of silver supplies is derived from gold mining and scrap. Only when the Newmonts and the majors have sufficient revenues to plow into new explorations will our explorer mines get a whiff of money coming their way. And that will happen when a higher gold price gives the majors an incentive to dig deeper. For right now though if you were them with a utility bill over 1/4 of your household budget you wouldn't be installing a Jacuzzi or undertaking any major yard landscaping projects without a handsome raise, either. No home equity loans, puleez!
The essential component in these waves of commodity crises is that the world is using the money we have swapped them for what they make. It's not so much that Chinese are gravitating to their larger cities that creates the demand, or "discovering democracy" - this migration is just a symptom precipitated by them having the "savings" (US dollars) to compete with us in buying for themselves what we also need. In effect, the more we buy from overseas with our debt money, the higher the price the Chinese (and other cultures) will be able to pay for commodities that are precious for our own sustenance.
I am not a statistician, and not even a capable gatherer of historical fact detail. I rely on you economic newsletter writers to expand on this and give your subscribers some solid fundamentals on where they're going with their precious metals investments.
It's simply not good enough anymore to just tell your readers that "silver is the buy of a lifetime".
Who's lifetime...yours or theirs?
- - CV

-- Posted 29 December, 2005 | |

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Last Three Articles by Charleston Voice

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Boil Them in Oil Over a Slow Fire
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