2021 interim silver market review
TRANSCRIPT
The Silver InstitutePhilip Newman & Adam Webb, Metals FocusNovember 17th 2021
2021 INTERIM SILVER MARKET REVIEW
Silver Institute Members
2
• A-Mark Precious Metals, Inc.• Alexco Resource Corp.• Asahi Refining USA, Inc.• Avino Silver and Gold Mines Ltd• Beijing G&S Digital Technology Co., Ltd.• Brink’s Global Services USA Inc.• Cia. de Minas Buenaventura, S.A.• Coeur Mining, Inc.• Dillon Gage Metals Division• Dolly Varden Silver Corp.• Endeavor Metals Group LLC• Endeavour Silver Corp.• First Majestic Silver Corp.
• Fresnillo Plc• Gatos Silver• Hecla Mining Company• Hochschild Mining plc• Industrias Peñoles S.A.B. de C.V.• Kuya Silver• MAG Silver Corp.• Myanmar Metals Limited• Pan American Silver Corp.• Tanaka Kikinzoku Kogyo K.K.• Tradewind Markets• Valcambi sa• Wheaton Precious Metals
3
Silver up sharply on both 2020 and 2019
Source: Bloomberg
10
12
14
16
18
20
22
24
26
28
30
1000
1200
1400
1600
1800
2000
2200
US$
/oz
US$
/oz
Gold Price Silver Price
4
gold-silver dynamic remains the principal driver
Source: Bloomberg
5
Links with base metals weakened recently
Source: Bloomberg
6
But a challenging intra-year performance
Source: Bloomberg
80
90
100
110
120
130
140
Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21
Inde
x
Silver Price Gold Price LMEX
7
The gold:silver ratio has risen from its February low
Source: Bloomberg
60
70
80
90
100
110
120
130
8
Overall, it remains just above the long-term average
Source: Bloomberg
Period average ratio
30
50
70
90
110
130
9
Silver ETPs: the social media effect
Source: Bloomberg, various ETF issuers
10
ETP holdings have broadly stabilized; still near record highs
Source: Bloomberg, various ETF issuers
18
21
24
27
30
33
36
1,000
1,050
1,100
1,150
1,200Value ($bn)Moz
11
Investor positioning has improved, but remains subdued
Source: Bloomberg
0
20
40
60
80
100
120
Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21
Inde
x
Silver Gold
Silver production recovers after COVID-19 disruption in 2020
12Source: Metals Focus
Mined silver production is expected to rise by 6% y/y in 2021 as most mines have been able to operate at full capacity throughout the year following COVID-19 stoppages in 2020. Output is expected to reach 829Moz, returning close to 2019 levels.
Mexican output to reach new high
13Source: Metals Focus
80
100
120
140
160
180
200
Mexico Peru China
Moz
2010 2011 2012 2013 2014 2015
2016 2017 2018 2019 2020 2021
0
200
400
600
800
1,000
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Moz
Lead/Zinc Silver Copper Gold Other
Mexican output hits a new high while Peruvian production remains low despite y/y rise.
Primary silver mines will account for 30% of total production this year.
Costs declined year-on-year in H1.21
14
Average AISC for primary silver mines in H1.21 was down by 5% y/y to $10.63/oz due to a rise in by-product credits. Higher prices y/y have meant only 5% of the cost curve was operating with AISC above the silver price compared with 17% in H1.20.
Note: costed production = c.80% of primary silver supplySource: Metals Focus – Silver Mine Cost Service
-20
-10
0
10
20
30
40
0 25 50 75
US$/oz
Cumulative Silver Production - Market Share (%)
H1.21 AISC
H1.20 AISC
H1.20 Silver Price ($16.63/oz)
H1.21 Silver Price ($26.47/oz)
FX rates and rising metal prices offset input cost inflation
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Note: AUD - Australian dollar, RUB - Russian ruble, MXN -Mexican peso, PEN - Peruvian solSource: Bloomberg, Metals Focus
Local currency weakness to the US dollar has constrained costs in some countries.
Base metal prices have been rising throughout the year pushing by-product credits higher.
80
90
100
110
120
130
140
150
Jan-21 Apr-21 Jul-21 Oct-21
Index
Gold Copper Lead Zinc
85
90
95
100
105
110
Jan-21 Apr-21 Jul-21 Oct-21
Index
AUD RUB MXN PEN
Rising base metal prices to push by-product credits higher
16
Notes: All-in Sustaining Costs (AISC) are net of by-product credits. On-site cost = Mining cost + Ore treatment cost + Mine site general & administration cost Source: Metals Focus – Silver Mine Cost Service
Increasing by-product credits have been constraining costs and their influence is likely to increase in H2.21 driven by rising base metal prices. This, combined with strong silver prices, will ensure margins remain healthy for primary silver miners.
-20
-15
-10
-5
0
5
10
15
20
25
30
35
Q1.
12Q
2.12
Q3.
12Q
4.12
Q1.
13Q
2.13
Q3.
13Q
4.13
Q1.
14Q
2.14
Q3.
14Q
4.14
Q1.
15Q
2.15
Q3.
15Q
4.15
Q1.
16Q
2.16
Q3.
16Q
4.16
Q1.
17Q
2.17
Q3.
17Q
4.17
Q1.
18Q
2.18
Q3.
18Q
4.18
Q1.
19Q
2.19
Q3.
19Q
4.19
Q1.
20Q
2.20
Q3.
20Q
4.20
Q1.
21Q
2.21
$/oz
Gold Zinc Lead Copper AISC Silver Price On-site Cost
CostsBy-product
credits
17
Global supply summary
Source: Metals Focus
1,023
972
+11.5 +0.2-6.7
-55.5
920
940
960
980
1,000
1,020
1,040
1,060
2019 Scrap Official Sector ProducerHedging
MineProduction
2020
Moz
18
Global demand summary
Source: Metals Focus
993
892
+16.5 -4.9-28.1
-83.7
840
880
920
960
1,000
1,040
2019 PhysicalInvestment
Photography Industrial Jewelry &Silverware
2020
Moz
19
Industrial demand, setting a new high
Source: Metals Focus
0
100
200
300
400
500
600
2010 2012 2014 2016 2018 2020
Moz Electrical & Electronics Brazing Alloys Other Industrial
20
Jump in Indian imports, helps explain recent tightness
Source: India Customs
0
8
16
24
32
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Moz
2020 2021 5-yr avg
Source: Metals Focus21
Jewelry & silverware partially recover
10
20
30
40
0
50
100
150
200
250
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E
US$/ozMoz Other India Silver Price
Jewelry
10
20
30
40
0
20
40
60
80
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E
Silverware
22
Bar and coin investment enjoys a strong recovery
Source: Metals Focus
10
15
20
25
30
35
40
0
50
100
150
200
250
300
350
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E
US$/ozMoz
US India Other Silver Price
23
Global demand summary
Source: Metals Focus
892
1,029
+63.6
+37.5
+34.8 +1.2
840
880
920
960
1,000
1,040
2020 PhysicalInvestment
Industrial Jewelry &Silverware
Photography 2021E
Moz
24
Global supply summary
Source: Metals Focus
972
1,022
+48.9+9.9 -0.2 -8.5
920
940
960
980
1,000
1,020
1,040
1,060
2020 MineProduction
Scrap Official Sector ProducerHedging
2021E
Moz
25
Market moves into a deficit
Surplus
Deficit
Source: Metals Focus
10
15
20
25
30
35
40
-40
-20
0
20
40
60
80
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E
US$/ozMoz
Balance Silver Price
26
The macro environment remains pivotal
Source: Bloomberg
US headline inflation surged to 31-year highs of 6.2% in October
27
The macro environment remains pivotal
Source: Bloomberg
5Y forward inflation expectation has surged above 3%, raising doubts whether current inflationary pressure will be transitory
28
The macro environment remains pivotal
Source: Bloomberg
Record low yields in real terms keep the cost of carrying silver minimal
US 10Y TIPS Yield
German 10Y Inflation Protected Bond Yield
29
Gold Forecast, 2021: $1,805, +2%
Source: Metals Focus
1,600
1,700
1,800
1,900
2,000
2,100
Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22
US$/oz
Spot/Average High Low
30
Silver Forecast, 2021: $25.40, +24%
Source: Metals Focus
20
22
24
26
28
30
32
Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22
US$/oz
Spot/Average High Low
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Disclaimer & Copyright @ Metals Focus Ltd, 2021Although every effort has been made to undertake this work with care and diligence, Metals Focus Ltd cannot guarantee the accuracy of any forecasts or assumptions. Nothing contained in this presentation constitutes an offer to buy or sell securities or commodities and nor does it constitute advice in relation to the buying or selling of investments. It is published only for informational purposes. Metals Focus Ltd does not accept responsibility for any losses or damages arising directly or indirectly from the use of this presentation.