Mexico mining halt to hit silver supply

Peruvian and Mexican mines make up almost 40% of the world’s silver supply. (Image courtesy of Grupo Mexico)

Mexico, the world’s largest silver producer, has become the latest country to enforce a suspension of non-essential activities in response to the outbreak of the coronavirus pandemic, after confirmed cases climbed above 1,000, with 29 deaths.

The government decree, effective until April 30, is expected to have a significant impact on the supply of silver at a time when demand for silver coins is high. 

Newmont Mining (NYSE: NEM), Argonaut Gold (TSX: AR), Pan American Silver (TSX: PAAS), Sierra Metals (TSX: SMT), Excellon Resources (TSX: EXN) and Alamos Gold (TSX, NYSE: AGI) have all announced temporary operations suspensions at its Mexican mines.

Other resource companies present in the country have yet to react to the government’s directive, despite a warning that those flouting the order will face fines or prosecution.

Newmont, which operates the Peñasquito mine in the state of Zacatecas, said it was taking steps towards a safe and orderly ramp down of operations at the asset, which is the country’s largest gold mine, second biggest silver mine and one of the top producers of zinc and lead.

Mexico is the world’s largest silver miner, accounting for roughly 23% of world production

Argonaut has confirmed that it is stopping mining, crushing and stacking activities, but given that it operated heap leach mines, metal production and metal sales will continue during the suspension.

Pan American, which operates the La Colorada (Zacatecas, pictured) and Dolores (Chihuahua) mines, has also begun to voluntarily reduce throughput by about 10% to 20% at its Timmins operation in Canada, hoping to further enhance physical distancing at the site.

Last year, La Colorada produced 8.2 million ounces of silver, while Dolores’ output came in at 5.1 million ounces.

Toronto-based Sierra Metals is only maintaining an essential services crew at its Bolivar mine site until April 30 and its Cusi mine site has already been placed into care and maintenance.

Bolivar, an underground mine with a 3,600 tonnes-a-day processing capacity, had previously been expected to produce 16,402 – 18,225 tonnes of copper-equivalent this year, while the Cusi underground mine was slated to generate between 1,732 and 2,126 silver ounces.

Alamos halted operations at its Mulatos mine and extended the suspension at Island Gold in Ontario for an additional two weeks.

Pushing for an exemption

Mexican industry leaders are pushing for an exclusion to the temporary halt of non-essential activities. They argue that mining should be allowed to continue due to its importance to national supply chains and the wellbeing of host communities.

Mexico is responsible for nearly 23% of world production of silver, churning out more than 200 million ounces last year, up from 196.6 million ounces in 2018. It also has major copper and zinc mines, operated by Grupo Mexico and Southern Copper, and produces a significant amount of gold, making the mining sector responsible for about 4% of the nation’s gross domestic product.

“To define the mining sector as non-essential, is not only to economically affect thousands of workers, but also to leave 656 communities alone where we operate and to whom we provide basic health services,” Fernando Alanís, president of the Mexican mining chamber (Camimex), said via Twitter.

Courtesy of CEIC Data.

The industry body’s call was mirrored by the Sonora state branch of the Mexican association of mining engineers, metallurgists and geologists (AIMMGM).

“Without the operation of the mining industry, various isolated communities would be affected by a decrease in health services which are so important in the current situation. It is important to find a balance,” mining representatives of Sonrora, Mexico’s top gold and copper producing region, said on Twitter.

Scotiabank analysts Ovais Habib and Trevor Turnbull said in a note they believed businesses that would suffer irreparable harm as a result of the suspension being exempted.

“In our opinion, mining could fall under this on a case-by-case basis,” they added.

People close to the matter, who asked to remain anonymous, told Reuters that some companies will be allowed to continue with some activities in an effort to avoid the “paralyzation” of future operations, as well as to promote mine safety.

The measure would also save about 2.6 million direct and indirect jobs, the sources noted, adding that an official decision on the matter is expected as early as next week.

Falling Demand

The coronavirus-triggered slowdown in global silver output will push the use of the metal in industries such as electronics and solar panels lower for a fourth year in 2020, Refinitiv GFMS said on Thursday in its annual Silver Market Review.

According to the study, silver consumption by the renewables sector will decrease to 511 tonnes from 555 tonnes in 2019.

It also forecasted that demand for silver in jewellery will drop to 190 tonnes, down from 210 tonnes last year.