Monday, May 6, 2013

Gold and Silver Supply Shrinking

The mining industry has not been able to increase production in response to the bull market in gold and silver over the last 10 years despite dramatic increases in capital spending.  Gold supply from recycling increased dramatically starting in 2008 and about doubled by 2012, "World Gold Council FY2011 Report".  Recycling provided 37% of total supply in 2012 up from about 25% in 2002.  Recently recycling has started to decline.  

According to the World Gold Council, mine production of gold in 2012 was 2,827.7t down 1% form 2011, including producer hedging.  Supply of recycled gold was 1,625.6t in 2012 down 3% from 2011.
2012 saw a pause in the rising trend in mine production from the 2008 lows as production grew by just 0.4% to 2,847.7t (9% above the 5-year average of 2,614.0t). Additional production was generated by a number of new projects coming on stream, primarily in Q1, as well as by the ramping of production at a number of relatively new operations. However, the impact of planned production interruptions and unforeseen delays at a number of mines, together with widespread labour unrest in South Africa, was of an equal scale. The net result for annual production was a negligible increase as these opposing influences cancelled one another out.
Among the countries to record an increase in annual production were China and Russia, while South Africa and Indonesia saw the largest absolute declines.
The World Gold Council's comments above imply that their production data includes miners from around the world.  I assume that  WGC members self report production data, so it is probably about as reliable as LIBOR interest rate reporting.  But is is the best that I can find.  And, it is consistent with my own analysis of 7 major gold mining companies in North America.  Production for these 7 is down 2% CAGR from 2010 to 2013E.

Finding production data for silver has been more difficult.  This report from came to my attention today.  It includes production data for miners that report their financial information to SEDAR which is the Canadian Securities Regulators electronic filing system.  Thus only mining companies whose stock trades on the Canadian exchanges are included.  You can see which mining companies are included at

Quarterly Au/Ag Production Reports from TSX/TSXv Miners

The running totals for new quarterly production reports since 1 April 2013, along with the changes on a Quarter on Quarter (QoQ) basis, for TSX/TSXv Gold and Silver producers is:
# Producers
Gold Produced
Latest Q Report
Gold Δ
Silver Produced
Latest Q Report
Silver Δ
60 of 1186,355,712 oz

217.9 tons

197.7 tonne
-6%24,561,955 oz

842 tons

764 tonne

Tonne = 1,000 kg or 32,151 troy oz of fine gold.

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