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Two-Thirds of Top Silver Miners Suffering Significant Production Declines

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The world silver market may be on the verge of a major supply crunch.

Two-thirds of the top silver miners have suffered significant production decreases in 2017, according to information released by World Metal Statistics.

Through the first eight months of this year, silver production in Chile has dropped 20%. Australian production has fallen by 19%. Silver production in Mexico is down 2%. Peru has seen a 1% production decline. And China has had the biggest drop in mine output, according to the report, falling by a whopping 25%.

A report by SRSrocco identifies several factors driving silver mine production lower.

I believe global silver production will take a big hit this year due to several factors including, falling ore grades, mine closures, and strikes at various projects.”

The report highlights some of the production woes for major producers. Overall, production at top primary silver miners has fallen 9 million ounces so far in 2017 compared to the same period last year.

Political issues have put a major hit on several miners. For instance, Tahoe Resources was forced to shut down its Guatemalan Escobal Mine in July due to a temporary suspension of its operating license by the Supreme Court. Even after the Guatemalan court reinstated the license, an ongoing road blockade has hampered operations.

Declining ore grade is a bigger long-term concern. According to SRSrocco, output at Silver Standard’s Puna operations in Argentina fell by 3.2 million ounces due to a 36% decline in ore grade at is open-pit Pirquitas Mine.

Taking these factors into account, SRSrocco sees the potential for a 40-50 million ounce production decline in 2017.

The Silver Institute will release its 2017 Silver Interim Report in the next few weeks. That will offer a better look at production numbers.

As we have reported, silver is already significantly undervalued compared to gold. Peter Schiff talked about the silver-gold ratio over the summer, noting it is historically very high. This means silver is extremely undervalued. The current silver to gold ratio stands at nearly 75:1. This means you can buy 75 ounces of silver with one ounce of gold. Consider the historic average ratio hovers around 16:1, and the modern average over the last century is around 40:1. As Peter said, “This is silver on sale.”

If these production numbers turn out to be accurate, we could see a significant increase in the price of silver based on supply and demand fundamentals. And as SRSrocco pointed out, there are broader economic issues to factor into the equation.

The world’s economies are being propped up by a massive amount of debt, derivatives and money printing.  When the markets finally crack, global silver production will fall considerably as demand for base metals will drop like a rock.  We must remember, 58% of world silver production is a by-product of copper, lead and zinc production.  So, when base metal demand falls, so will base metal production. Thus, as the market and economy continue to disintegrate, global silver supply will fall right at the very same time investment demand surges.”

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