Death of the World’s Largest Silver Mines

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Published : October 22nd, 2013
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24hGold - Death of the World’s...

While at the gym, this morning, I watched Chicago Fed President Richard Evans on CNBC.  And no, not purposefully; but because the gym has large-screen televisions surrounding the cardio floor – showing everything from ESPN to CNN.  However, in order to get his gist, I simply needed to see the blurbs blaring onscreen.

Evans, best described as a “dove’s dove” – along with Janet Yellen, of course; was clearly trotted out to let the world know NO TAPERING will be announced at next week’s FOMC meeting – and likely, not at the December meeting either.  He knows, just as we, that the dyingeconomy cannot survive another interest rate spike – particularly the rapidly deteriorating housing sector.  And thus, with tomorrow’s September NFP employment anticipated to print 185,000 new jobs (from where, I have no idea), he noted the Fed would require “consistent 200,000+ prints” and a lower jobless rate before even considering a QE reduction.

In fact, he used every “no taper” smoke screen imaginable to get his point across, from “following the government shutdown, it will take several months to sort out the jobs situation”; to the Fed is doing its best to keep the economy moving; the economy could use additional fiscal stimulus; we’re surprised at the market’s reaction to our forward guidance; we’re concerned about pulling back at the wrong time; and my ALL-TIME FAVORITE – “the Fed is not concerned that quantitative easing is creating asset bubbles.”

Regarding such infamous last words, it’s quite amazing how such a weak economy could produce record stock prices.  Not to mention, in Europe – where stocks are soaring amidst the worst economic progress of our lifetimes; Japan , where the BOJ’s maniacal “qualitative quantitative easing” is not helping the economy at all, yet the Nikkei continues to rise in a hyperinflationary (government-aided) blow-off; or even China, where the supposedly “conservative” PBOC has fostered the world’s most dangerous real estate bubble.  As for such foreign bubbles, recall what I wrote last month of the MASSIVE exported inflation created by the Fed; which will only worsen with each dollar printed.  Just watch Venezuela, where the Weimar experience is commencing – for the blueprint shortly to be experienced the world round.  And as for America, it’s just a matter of time before the Fed’s fiat Ponzi scheme “comes home to roost.”

Hopefully, these dire circumstances help you to realize just how desperate TPTB are to prevent the inevitable worldwide “gold rush” from commencing; per their actions last night, starting with yet another Sunday Night Sentiment attack, followed by the 98th visit from the 2:15 AM suppression algo in the past 110 trading days.  As I write at 11:00 AM EST, gold is – I kid you not – at $1,319, just below its six-week old “line in the sand” at $1,320/oz.; although encouragingly, silver is up $0.35 to $22.30 – yet again,breaching its own, six-week “line in the sand” at $22/oz…

24hGold - Death of the World’s...

Irrespective of the daily noise in the manipulated PAPER markets, worldwide PHYSICAL demand is stronger than ever.  Gold forward rates have again gone negative, whilst Chinese gold demand is on pace to doublefrom last year’s RECORD levels.  And call me a “conspiracy theorist,” but does anyone else find it “interesting” that China’s largest conglomerate just purchased the Manhattan building housing JP Morgan’s gold vault?

As for silver, the U.S. mint remains on pace to obliterate 2011’s record Silver Eagle sales; and with production set to collapsefollowing this year’s maniacal PAPER raids – which have pushed prices well below the cost of production – worldwide demand is ON FIRE.  In India, for example, where its government believes the plunging Rupee can be saved by preventing Precious Metal imports, citizens are purchasing silver at explosive, RECORD levels.  It’s just a matter of time before the next silver supply shortage crops up, prompting EXPLODING prices; and this time around, it just may be the “straw that breaks the Cartel’s back” – per the below commentary from “Admiral Sprott”…

We get data out of India.  They consumed slightly less than 2,000 tons of silver late year.  It would appear they are going to consume 6,000 tons this year.

It might be a little early for me to say that because as gold has been restricted, that number might even be well above that (total of 6,000 tons of silver). 

But when you (as India) buy an extra 4,000 tons of silver in a year, you are buying an extra 17% of the (entire global) market.  So we have a new entrant into the (silver) market who takes down 17% of the supply, and the price goes down.  It’s the same analogy as China buying gold.  They (China) buy 25% more of the (entire global) market and the price (of gold) goes down.

-King World News, October 20, 2013

As for the supply side, I continue to predict an epic plunge in the coming two to three years; particularly if global economic activity continues to weaken.  Remember, more than two-thirds of all silver supply is by-product of other mine types, particularly economically-sensitive base metals like copper and lead/zinc.  Worldwide silver production is flat over the past four quarters; however, the full impact of this year’s PAPER raids smashes is just now beginning to be realized.

To wit, Chile is by far the world’s largest copper-producing nation, mining 5.37 million tonnes in 2012; compared to the number two nation, China, which produced just 1.50 million tonnes.  Silver is a significant by-product of Chilean copper mines; which in fact, are responsible for 5% of all worldwide silver production.  In the four years following 2008’s Global Meltdown I, Chilean copper production has barely been flat.  However, due to the increasingly cost prohibitive process of extracting silver, Chilean silver production has since plunged; by a whopping 17%!

24hGold - Death of the World’s...

As for individual mines, it should be no surprise the world’s largest silver producer is not a silver mine at all; but instead, the Cannington lead-zinc mine in Australia – itself,  is just the fourth largest silver-producing nation; and a very distant fourth, I might add.

24hGold - Death of the World’s...

Cannington went into production in 1997; but as of today, has just eight years of remaining mine life, according to its operator, BHP Billiton.  Not that its reserve life can’t be extended via additional – costly – exploration; however, given its current production statistics, it’s fair to say that even extensive drilling will not reverse the rapid depletion of a mine producing nearly as much as the entire Chilean copper industry.

Below is a chart from the irrepressible Steve St. Angelo of the SRS Rocco Report; in my view, the world’s top mining analyst.  It measures the past decade’s performance at Cannington; depicting a dire cost progression, as total ore processed surged 39%, whilst average ore grade plunged 36% and silver production by 16%.  Given that BHP claims ore grades are expected to fall further, to 275 grams/tonnes in the next few years, it’s a “no-brainer” that production costs will raise further.  Steve already estimates global silver production costs at between $25 and $30/oz.; and thus, as the WORLD’S LARGEST SILVER PRODUCING MINE depletes further, the global average will continue to rise.

24hGold - Death of the World’s...

Here at the Miles Franklin Blog, our goal is to teach you that only PHYSICAL Precious Metals are assured to protect your purchasing power over time; particularly amidst the historic MONEY PRINTING Ponzi scheme being perpetrated by all the world’s Central banks.  And if we can’t convince you PMs are the world’s most inexpensive assets qualitatively, we’ll do so quantitatively; as is the case here, where I’ve highlighted how silver production costs are not only $25-$30/oz. as we speak, but headed significantly higher.  No matter what argument inspires you to trade dying scrip for history’s only proven MONEY is immaterial; so as long as you PROTECT YOURSELF, and do it NOW!

Data and Statistics for these countries : Australia | Chile | China | India | Japan | Venezuela | All
Gold and Silver Prices for these countries : Australia | Chile | China | India | Japan | Venezuela | All
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Andrew Hoffman was a buy-side and sell-side analyst in the United States (including six years as an II-ranked oilfield service analyst at Salomon Smith Barney), but since 2002 his focus has been entirely in the metals markets, principally gold and silver. He recently worked as a consultant to junior mining companies, head of Corporate Development, and VP of Investor Relations for different mining ventures, and is now the Director of Marketing for Miles Franklin, a U.S.-based bullion dealer.
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