Silver Prices Could Soar on the Back of Struggling Miners
It’s very important to start looking at the supply side of the silver market. It makes a solid case for silver prices soaring to $50.00 an ounce sooner than later.
Where do you go to assess the supply side of the silver market? Look at the production figures of silver miners. When we do just that, it looks as if silver production is coming to a halt.
Look at Hecla Mining Company (NYSE:HL), for example. It is one of the largest and oldest silver producers in the U.S.
In the first half of 2017, the company produced 6.17 million ounces of silver. In the same period a year ago, it produced 8.88 million ounces of silver. Doing the simple math here, production at the company plunged more than 30% year-over-year. (Source: “Hecla Reports Second Quarter 2017 Results,” Hecla Mining Company, August 3, 2017.)
We really don’t want to single out Hecla Mining. We see this happening across the board.
Consider First Majestic Silver Corp (NYSE:AG), another notable silver miner. In the second quarter of 2017, the company produced 2.28 million ounces of silver. In the same period a year ago, the amount of silver produced was 2.84 million ounces. Again, using simple math, this represents a decline of 20% year-over-year in silver production. (Source: “First Majestic Produces 3.9M Silver Eqv. Oz in Second Quarter,” First Majestic Silver Corp, July 11, 2017.)
Exploration Spending Plummeting
Dear reader, in the grand scheme of things, these two companies don’t really tell much. Think big-picture and long-term.
After the slump in silver prices back in 2013, 2014, and 2015, silver mining companies have been doing something that’s very dangerous for them, and also makes silver a compelling opportunity: they reduced their exploration spending.
Know this: when mining, resources get depleted. So mining companies must continue to look if they want to remain in business for the long term.
Consider Coeur Mining Inc (NYSE:CDE). In 2012, the company spent $26.27 million on exploration. (Source: “Coeur Reports Fourth Quarter and Full-Year 2013 Results,” Coeur Mining Inc, February 20, 2014.)
Fast forward to 2016, and exploration spending was just $12.93 million. This is a decline of over 50%, and we saw similar spending cuts at other silver miners as well. (Source: “Coeur Reports Fourth Quarter and Full-Year 2016 Results,” Coeur Mining Inc, February 8, 2017.)
In 2017, we have seen a slight uptick in exploration spending, but it has to be questioned whether it’s too late now.
Silver Prices Outlook: Basic Economics at Play
Never forget basic economics. When supply faces headwinds and demand increases, prices soar. There is no exception when it comes to silver prices.
As the silver supply side is crushed and the demand for the metal is significant, it would be foolish to assume that silver prices are going to remain where they currently stand. We could really see a super spike that sends silver prices soaring to $50.00 an ounce in no time.