Snippet:

“The falling average yield in the silver mining industry seems to be overlooked by the majority of analysts.  As we can see in the chart above, the primary silver miner’s average yield has fallen from 13 oz/t in 2005 to 7.4 oz/t in 2016.  This is a 43% decline in just 12 years. “

The very interesting article by Srsrocco can be found HERE.

Horseman’s comments:

…This goes to show how rare high grade silver deposits are today, and becoming even rarer. One of my favorite silver juniors is Dolly Varden Silver , which has a deposit grading 300gpt+. Most of my other silver explorers/developers have grades ranging from 50-100gpt.

The declining yield is of course positive for silver investors, especially physical silver investors, in the long run. It means that the marginal energy/cost spent to abstract silver is going higher since there is less silver in every ton being dug up (all else being equal). This in turn means that the “floor” price for silver should also be going higher since  producers will need higher and higher prices in order to stay profitable. Of course, this “floor” price is also affected by changes in mining efficiency due to improvement in technology as well as how efficient the mining operations are overall. But all else being equal, we see a decline in high grade silver deposits as well as discoveries overall due to the low hanging fruit phenomena… The best and most profitable deposits have probably already been found.

Evidence of this decline in yield (higher costs) can be evidenced by the simple fact that only a few decades ago, miners were digging up silver profitably when prices were below $8. Today, the absolute BEST miners have an AISC number above that. This is why I believe that all the doomsayers shouting about $5 is absolutely ridiculous. If that were to take place, there would soon be no primary silver miner left what so ever. The only scenario I could see this happening is if there were some revolutionary technology coming out that dramatically cut production costs for the miners. In that case, owning silver miners would probably be a pretty good deal anyway. Add the fact that the average time to go from discovery to production today is about ten years, there wouldn’t be much silver supply coming online anytime soon even if silver mining were to become highly profitable.

When we hit the “likely bottom” in miners during the beginning of 2016, there were literally companies trading BELOW net cash, and that was when silver was trading for about 14 bucks. If that wasn’t the bottom, can you imagine where miners would have to trade if we go down to $8 in silver? Sure, many companies have cut costs, but still today many companies are barely scraping by, except for the elite miners. Company valuations alone were a tell that silver was trading at ridiculous levels back then, how ridiculous would it be if silver prices were cut in half (granted no revolutionary technology as said before)? Would you get actually payed to buy stocks in silver miners?

To sum it up, we seem to have hit peak silver production, have declining grades overall on top of silver having been in a deficit for most of the last decade. What better “contrarian case” is there?

 

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