If you are a precious metals investor, you need to see this chart. Matter-a-fact,
this is the first time (to my knowledge) in the history of precious metals
analysis that the information in this chart has been made public. One
look at this chart and the investor will realize the huge difference between
the cost to produce the precious metals.
In addition, the information in this chart will show why the peak of
primary gold production will occur before the peak of primary silver
production. However, global silver production will likely peak soon
after world gold production. Thus, individuals understanding the
difference, will likely provide some rewarding investment strategies most are
currently unaware.
As I have mentioned time and time again, ENERGY IS THE KEY to the
value of the precious metals. This goes well above and beyond
the percentage of energy consumed in the production of an ounce of gold or
silver. Unfortunately, investors do not realize that 90-95% of the
value of an ounce of gold or silver is directly related to the amount of
energy consumed IN ALL FORMS and IN ALL STAGES in the their production.
Labor is a form of energy. Upper management pay, is a form of energy
(highly skilled energy). The materials consumed in the production of
gold and silver get their value from the energy consumed IN ALL FORMS and in
ALL STAGES. The mining equipment used in the production of gold and
silver also get their value from all the energy consumed in their manufacture
(in all forms and stages).
While the market understands that energy is large percentage in
the cost to produce gold or silver, they fail to realize LABOR, MATERIALS and
EQUIPMENT are all “Energy Derivatives.” Even though labor,
materials and equipment are listed as different itemized costs on the
precious metals mining company’s balance sheet, they are all ENERGY COSTS
when we break them down to their simplest form.
That being said, let’s look at the huge difference in the consumption of
diesel in the primary gold and silver mining industry. I selected
Barrick because they are the largest gold producer in the world and Pan
American Silver is one of the largest primary silver mining companies.
While other companies such as Fresnillo in Mexico produce more silver than
Pan American Silver, I was able to obtain diesel consumption data from Pan
American Silver more readily as they just released their 2014 Sustainability
Report.
If we look at the chart below, we can see just how much more diesel is
consumed in the production of gold than silver:
According to the data from companies 2014 Sustainability Reports, Barrick
consumed 20.8 gallons of diesel to produce an ounce of gold while Pan
American Silver used 0.2 gallons to yield an ounce of silver. Basically,
it took Barrick 100 times more diesel to produce an ounce of gold in 2014
than it took Pan American Silver to produce an ounce of silver.
That said, let me clarify a few things. First, these mining
companies state their energy consumption figures in various metrics.
For example, Barrick listed their energy consumption in giga joules and Pan
American Silver in cubic meters. So, we have to make some conversions
to gallons to make a comparison.
Secondly, I took all of Barrick’s estimated diesel consumption and divided
it by the total amount of gold produced in 2014. However, I only used
Pan American Silver’s five primary silver producing mines to calculate their
diesel consumption. Pan American Silver has two additional mines (Dolores
& Manantial Espejo) that produce a great deal of gold. Thus, these
two mines consume a great deal of energy, similar to primary gold mines.
Furthermore, the revenue obtained from Pan American Silver’s Dolores and
Manantial Espejo Mines was higher in percentage of gold than silver.
So, I omitted these two mines when calculating a more ideal energy
consumption metric for the primary silver mining industry.
For those who like to see the actual data, here it is below:
BARRICK 2014
Total Diesel Consumed = 129 million gals
Total Gold Production = 6.2 million oz
Diesel consumed per oz of gold = 20.8 gal
PAN AMERICAN SILVER 2014
Diesel Consumed by 5 Primary Silver Mines = 3.5 million gals
Total Primary Silver Production (5 mines) = 18.4 million oz
Diesel Consumption per oz of silver = 0.2 gals
Yes, it’s true that Pan American Silver produced 26.1 million oz (Moz) in
2014, but remember, I had to subtract the 7.7 Moz supplied by the Dolores and
Manantial Espejo Mines as they were more a primary gold mine with silver
by-product credits.
Peak Gold vs Peak Silver: How Will This Play Out?
The question many investors may ask after reading the information above
is… What do these figures mean? This is a good question.
Why? Because, I believe it will provide some favorable investment
strategies for precious metals investors that aren’t presently understood.
One of the things I try to do on my site is to show how energy will impact
the precious metals, the miners and the overall economy going forward. However,
when I post an energy article, it goes over like a FART IN CHURCH.
My energy articles receive a tenth of the readership compared to some of my
more popular precious metal articles. And this is quite a shame, because
ENERGY IS THE KEY to understanding how the world evolves or collapses going
forward.
As I stated in a recent article, U.S. Shale oil production already peaked
earlier this year. ITS A DONE DEAL. So, for all the folks who
continue to believe the CRAPOLA put out by the U.S. Govt or MSM that the U.S.
is still on track to be energy independent…. WAKE UP, it’s a big lie.
With the peak of U.S. Shale oil production already in the rear-view
mirror, I believe we will see the peak of global oil production very
soon. Thus, the world will have LESS and LESS oil in the future each
year to run the system… and this includes the mining industry.
If we consider that it takes the primary gold mining industry (on average)
100 times more diesel to produce an ounce of gold than the primary silver
mining industry, peak oil will impact the gold mining industry a great deal
more than the primary silver mining industry. Which is why I
believe we will see a peak of primary gold production before primary silver
production.
However, that doesn’t mean global silver production will peak many years
after primary gold production. Why? Because 70% of global silver
mine supply comes as a by-product of base metal and the gold mining
industries. As global oil production peaks and declines, it will also
cause World GDP to fall. A falling Global GDP means less economic
activity… thus less demand for base metals.
We will see less available diesel for the base metal mining industry, or
less demand for the metals. Either way, global peak silver production
will be a result of the peak of base metal mining, not primary silver
mining. Matter-a-fact, I actually see growth in the primary
silver mining industry after peak oil due to two factors:
1) The relatively small amount of diesel consumed in
producing primary silver
2) The skyrocketing price of silver (due to the collapse
of fiat money and paper assets) and its positive impact on the primary silver
mining industry.
While most analysts continue to push resource stocks, there are very few
worth owning. For example the folks at Porter Stansberry have been
cheerleaders for the U.S. energy industry, and in many cases… the shale
companies. I have said from the beginning, Shale Oil & Gas
Companies (for the most part) are dogs and will continue to be dogs.
I just read in a recent Stansberry Portfolio Update the following:
For the Stansberry Alpha portfolio, we are closing the CHK (Chesapeake
Energy) position and will no longer cover the stock. We will
record a loss of 153% on margin (31% on capital at risk) in our official
portfolio.
I don’t want to seem brazen here, but if some of their investors listened
to me FOR FREE instead of paying Stansberry & Associations an ARM &
LEG for their investment advice, they wouldn’t have lost 153% of their money
investing in one hell of a lousy shale gas company stock.
Now, don’t get me wrong, I am not singling out Stansberry &
Associates… as we in the precious metal community deserve some blame for
underestimating how long the Fed and Central Banks could prop up the markets
and drive the paper price of gold and silver much lower. However,
buying most resource stocks that will only go lower is different from owning
physical precious metals that will only go higher in the future.
Precious metals investors haven’t lost value in their physical gold and
silver holdings, unless they are unwise and sell them now. This is much
different from investing into worthless resource stocks that will only
continue to lose value going forward.
Okay, if you follow my drift on why primary gold miners will peak before
primary silver miners, the Primary Silver Mining Industry may offer a
much better investment strategy in a peak oil environment. Of
course, there are no guarantees, but I do see the primary silver mining
industry growing for a while, even after the world peaks in global oil
production.
I believe silver will become one of the go to physical assets to own in
the future as the majority of paper and physical assets lose value. This
will make the primary silver miners margins-profits quite handsome… as well
as their stock price. However, if you are going to invest in
the primary silver mining “producers” (not explorers), do so with money you
can lose. Make sure you have your nest egg of gold and silver bullion
first before you put some throw-away money in the primary silver miners.
The reasoning here is… if the primary silver mine you purchased is either
nationalized or shut down for whatever reason in the future, you only gambled
money you didn’t need. This not only allows one to sleep better at
night, but it also is a smart way to invest one’s capital.
If you want to get a better understanding of how ENERGY impacts the
primary silver mining industry, I would suggest you read the information in
my recently released THE
SILVER CHART REPORT. It gives a good background on
falling ore grades and yields in the primary silver mining industry as well
as how the price of oil impacted the value of silver over the past 100+
years.
PLEASE NOTE: This report is not just made up of
charts. Each chart has a page of explanation.
If you haven’t checked out THE SILVER CHART REPORT,
there’s a great deal of information on the Silver Industry & Market not
found in any single publication on the internet. There is one
chart in this report (Chart #19) that I can guarantee that 99.9% of precious
metal investors haven’t seen before.
Most analysts focus on
a certain area or sector of the silver market. However, the information in
this report illuminates a holistic view of many sectors of the silver
industry, capturing the relationships that connect many parts of the market.
One of the important aspects of my work is to look at many industries and
markets from a bird’s-eye view. From this perspective, we can see how
industries and markets impact each other to a much larger degree than by just
focusing on individual sectors.
CLICK HERE: For The Silver Chart
Report
I use this bird’s-eye approach when I create my easy to understand
charts. The Silver Chart Report is a collection of my
top silver charts from articles published over the past six years, and
includes in-depth, never-before-seen charts and content that indicate that
silver is on the rise. There are 48 charts in the report, broken down in five
sections.
NOTE: Anyone who purchased but did not receive the
report, please use the contact page to contact me.
