-- Posted 23 October, 2006 | |

After reading how Mr. Frank Veneroso is bearish on silver and how he believes supply is going to expand, I decided to check silver production in 2006 versus the previous two years.  The Silver Institute compiles a list of the 20 top silver producers each year.  I have been able to find the 1st 6 month or 9 month production results of 11 of these companies.  These results were obtained from the company’s web sites, quarterly financial statements or from response to my emails.  A twelfth result, was obtained from Barrick which responded to my email saying they do not keep quarterly statistics on silver production, but expect to produce 10 million ounces this year.  A listing of the top 20 companies in 2004, and their 2004, 2005, and estimated 2006 production, in million of ounces, is shown below. 

The 2006 figures are annual estimates based on the 1^st 6 or 9 months results.  The one exception to this is the top producer, BHP Billiton whose production dropped drastically from the 1^st to 2^nd quarter.  For BHP the 2^nd quarter result was used and extrapolated for the entire year.  The 2006 figures with an asterisk indicate that the 2005 figure was used because 2006 data could not be found and the companies did not respond to my emails.  The only change to the Silver Institutes list from 2004 to 2005 was number 20 which was Comsur in 2004 and was Goldcorp in 2005.  The 2006 figure for the number 20 spot uses an annual figure for Goldcorp based on their 1^st 6 months of production this year.

This list shows how difficult it is for the majors to increase production even with the higher prices this year.  The only producers with significant growth this year are Kazakhmys, and Pan American.  On the contrary, most of the production rates have dropped, including significant drops by BHP Billiton, Grupo Mexico, Barrick, Coeur D’ Alene, Xstrata, and Goldcorp. 

A far as new supply in coming years, Coeur says new mines in the next couple of years will return them to the number one primary producer, a title which has been won by Pan American this year.  Apex Silver is scheduled to start stripping overburden at their San Cristobal project next year.  The San Cristobal mine is anticipated to produce 22.3 million ounces of silver per year.  This mine should be opened with the only obstacle being that Apex has lost 10’s of millions of dollars already by hedging this mine.  A 2^nd major project is Barrick’s Pascua-Lama which Barrick had said they would open in 2009.  This mine is anticipated to produce 30 million ounces per year; however, environmental resistance to the mine has surfaced due to potential damage to glaciers which supply local communities with water.  I believe a suit has also been filled against Barrick regarding the case that they only paid $10 for the land or mineral rights to the owner of some of the Pascua-Lama property.

The Silver institute gives total 2004 silver mine production to be 620.4 million ounces and 2005 to be 641.6 million.  That means that smaller producers (other than the top 20) produced 271.4 million ounces in 2004 and 286.5 million ounces in 2005.  This means smaller producers increased production by 15.1 million ounces between 2004 and 2005.  The above table shows production by the top 20 is projected to have a 35.8 million ounce drop this year.  If we assume the small producers have another 15.1 million ounce gain this year, total production will still drop 20.7 million ounces to 620.9 million.  This returns production to roughly 2004 levels, and means that 2005 may have been a watershed year.

I don’t doubt Mr. Veneroso’s claim that new production will come on line.  The problem for the bears is that old production is going off line.  Based on the above production list, I leave it to the reader to determine which of the following is true.  Either the Silver Institutes 2005 numbers are inflated, or I can’t read production tables and emails (had my eyes checked last year and did not need glasses), or Silver production by the big boys is falling fast.  Maybe fast enough to send the last 4 bears on COMEX. running.  I do own silver and silver shares of Goldcorp.