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Silver’s Smoking Guns, Part I: Mining Paradox

November 15th, 2012

Jeff Nielson: When a reader (and fellow silver-mining investor) recently expressed his frustrations on our Forum regarding the absurd valuations which most of these miners currently exhibit, I decided it was once again time to try to shed some light (and sanity?) on this subject.

When I began investing in these silver miners many years ago; one of the first anomalies to which I was introduced was that the vast majority of silver produced in the world (more than 75% at that time) was produced as a “byproduct” of other mining. While I immediately recognized that this was an extremely important factoid, at that time I lacked the level of understanding necessary to glean its true significance.

Since that time, the ramifications of these incredible parameters in silver mining are now apparent to me. Sadly, however, this important analytical point does not seem to be as apparent to others. While I’ve covered this subject matter once already in a prior commentary, the lack of general awareness in this area clearly merits repetition of this analysis.


The basic parameters for the mining of metals on our planet are simple and clear. With nearly every commercially-produced metal on the planet, the vast majority of that metal is produced via “primary” mining – mines which “primarily” produce that particular metal. The reason for this should be obvious.

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At the large scale at which the modern, global economy operates; the need develops to secure large supplies of these metals. For purposes of both efficiency and a secure supply-chain; it is natural/preferable to seek to develop “copper mines” to meet copper demand, “zinc mines” to meet zinc demand, etc.

We would thus expect all of these commercially/industrially consumed metals to have production models where the vast majority of supply came from primary mining, with the metal which was produced as a “byproduct” (through the primary mining of other metals) being merely incremental to supply.

Indeed, with any/every metal for which there is this commercial/industrial demand, there are only two market paradigms where we would not expect the majority of (new) supply to come from primary mining, but rather as a byproduct of other mining:

a) Metals with a low level of demand, and/or only limited or specialized uses;

b) Metals which are found in either such small quantities or trace amounts that “primary” mining is not commercially feasible.

It is abundantly obvious that silver doesn’t come close to meeting either of those two conditions. With respect to its level of demand and its multitude of commercial/industrial applications; silver is literally in a class by itself.

With its aesthetic appeal (it’s the brightest of all metals) and malleability, it is (along with gold) the world’s best and oldest form of real “money”. On that basis alone there is significant investor demand for silver. Meanwhile, with new patents for silver-based industrial applications outnumbering those of any other metal; industrial demand for silver is large, strong, andgrowing.

The demand parameters are unequivocal: the majority of silver mined in the world should come from primary silver mining. This leaves the issue of supply. Is silver so rare in quantity and/or purity that primary silver mining is not feasible? Absolutely not.

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Again the evidence is totally unequivocal, and can be demonstrated either from an historical perspective or via current, empirical data. Historically, the world used to be full of silver mines. From the 16th century until the latter half of the 20th century; the vast majority of the world’s silver was always supplied through primary silver mining.

What happened toward the end of the 20th century? Nothing much…other than the price of silver being driven down to a 600-year low (in real dollars)—and held there. At this point the realities of silver mining become just simple arithmetic.

If the price of copper was driven down (and held down) at a 600-year low, there would soon be few if any primary copper mines in the world; and the vast majority of copper would have to come as a byproduct of other mining. If the price of nickel was driven down to a 600-year low, the world’s nickel mines would quickly be driven out of business. And so on.

Is there so little silver around that it cannot be located and mined at large-scale, commercial levels? Absolutely not. While silver is admittedly a “precious” metal, it is roughly 17 times more abundant in the Earth’s crust than gold; and throughout history the majority of the world’s gold has always been produced via primary gold mining.

Indeed, the parallels (and differences) between silver-mining and gold-mining are highly instructive. Despite being much less abundant than the lesser “base” metals; throughout history gold and silver have always been produced via primary mining. Even in the 1980’s and 1990’s when (by remarkable coincidence) the price of gold had also been driven down toward historic lows, most of the world’s gold still came from primary mining.

Where the gold-mining industry and the silver-mining industry differed was that the level of price-suppression with gold was never as savage/extreme as occurred in the silver market, and so the primary gold-mining industry survived.

The historical evidence, recent empirical evidence, and simple arithmetic/economics of global mining are crystal-clear. All commercial/industrial metals should be supplied mostly through primary mining (subject to the limited exceptions previously noted). This directly implies an even more important principle: by definition, the “fair-market price” for any metal is one which is high enough to support primary mining as the dominant component of supply.

There can be no argument here. The only reason why gold can be “primarily” mined and sold by the ounce whereas copper is mined/sold by the pound is price. This, in turn, leads to another unequivocal conclusion: the only reason why the majority of (new) silver supplied to the market today does not come from primary silver mining is that the price of silver continues to be suppressed far below its fair-market value.

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The same mining geologists scouring the world for gold, and generally encountering it in concentrations of between one and five grams per ton of ore, are locating silver (in large deposits) at concentrations of between 100 and 200 grams per ton – and sometimes more. If silver was fairly priced in the marketplace today, the majority of silver production would be coming via primary silver mining instead of as a byproduct of other mining.

This is a conclusive “smoking gun” pointing toward the manipulation of the price of silver in the silver market. The fact that the laughably myopic CFTC can see “no evidence” of silver-manipulation despite claiming to have focused all its regulatory/analytical prowess on this market for roughly the past five years only undermines the legitimacy of that institution still further.

Despite the rise in the price of silver from under $4/oz (its 600-year low) to over $30/oz, a large portion of the world’s small-but-growing number of primary silver miners are struggling just to turn a net profit. Yet despite the economic realities of supply and demand, all we get out of the mainstream media is repeated, idiotic rhetoric about some mythical “silver bubble”.

The absurd/incredible paradigm of modern silver mining is mirrored by parallel imbalances and absurdities in the world of silver. Part II of this series will look at the Investment Paradox which has resulted from the serial suppression of silver prices; while Part III will focus on the Market Paradox – and yet again shine the spotlight on glaring evidence of silver manipulation.

Written By Jeff Nielson From Bullion Bulls Canada

Jeff Nielson is from Canada and is a writer/editor for Bullion Bulls Canada www.bullionbullscanada.com. He has a personal background in law and economics. Bullion Bulls  Canada provides general macro-economic and political commentary,  since the precious metals markets are among the most complex (and  misunderstood) in the world.

Bullion Bulls Canada also provides basic coverage of Canadian precious metals mining companies. Canada is the global leader in mining exploration, and Canadian-listed mining companies (on the Toronto Stock Exchange and Venture Exchange) are responsible for the majority of the world’s most-promising discoveries.


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  1. Johnny Marroni
    November 19th, 2012 at 06:15 | #1

    Isn’t the opposite true?

    it is dangerous to invest in silver mines! Because silver has NO price floor. Because silver is a byproduct!

    I have an investment in a nickel mine. When nickel falls below ca. 15’000 $/ton, many nickel miners go out of business, so the pice floor is around (just an estimate) of 15’000 $/to. “my” mine still makes some bucks (low price production).

    But there is still silver production, even if silver falls to 1$/uz

  2. Brendan
    November 16th, 2012 at 19:12 | #2

    Agreed. This is a fallacious argument. Primary vs. Byproduct mining? How does that prove price manipulation?

    With commodity prices the way they are most of the the mines of the world are now poly metallic producers. Typically they are considered Gold mines first and foremost although they have byproducts of silver, copper, zinc, mangangese, etc.

  3. George
    November 16th, 2012 at 14:29 | #3

    The true price suppression comes from a simple fact. The paper scam of fictitious paper representing physical silver which causes prices to be tied together, making the price of the physical silver lower.
    Paper silver can never be delivered or taken possession of for any usage by industry, it is merely am investment tool.
    It is only when the paper holders realize that they will never own actual physical silver, and ask for delivery and be told “No Way”, that the price will decouple and physical will go through the roof!

    It isn’t hard to see manipulation when the Comex and Commercial Banks put more paper silver in the market in one day, than has been mined in 3 years!

    If you can not hold it in your hands, see it, and feel it, you do not own it!!!

  4. Steve
    November 16th, 2012 at 00:20 | #4

    Lack of primary mining as proof of price manipulation is weak logic. This is an attempt of trying to establish truth by assertion. As long as co-production meets demand no one will open up a separate mine of any kind. In other words right now for silver demand not supply sets the price and the means of production. You have you supply and demand backwards.

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