Silver Supply Stagnation Amid Rising Demand: Challenges and Future Opportunities

The global supply of silver produced by mines has remained steady at around 1 billion ounces annually, with little growth in recent years. Meanwhile, demand is surging, particularly from the photovoltaics (solar panels) and electric vehicle sectors, leading to widening supply deficits. Although rising silver prices might encourage increased production, extraction costs are climbing sharply.

Analysts estimated that in early 2024, the average production cost for leading silver miners rose to at least $26 per ounce. Some higher-cost operations may struggle to turn a profit, even with silver priced at $30 per ounce. Silver prices typically find strong support near the average all-in sustaining cost of production, a figure expected to rise further.

Forecasting future costs for mining companies involves more than simply extrapolating from past data. Operating an existing mine differs from the significant financial and time investments required to explore new deposits and develop new mines. Mines are depleting assets, eventually exhausting their extractable resources. As a result, new mines are essential for maintaining supply, a process that demands substantial capital and time.

Developing new mines is a lengthy endeavor, often taking decades. For instance, it takes over 20 years to develop a gold mine, with even longer timelines for other metals like copper and nickel, which also produce silver as a byproduct. Regulatory challenges further delay or prevent viable projects, particularly in regions like the United States, where development times average 29 years from discovery to production.

A very small proportion of mining projects succeed, with only 1 in 750 moving beyond the discovery phase. The sunk costs of failed projects, not included in industry production estimates, make the true cost of newly mined metals significantly higher than reported. These represent lost opportunities to invest in above-ground metals, which could prove more profitable.

Holding physical precious metals like gold and silver offers protection against the devaluation of fiat currencies and risks in financial markets. While cash reserves serve practical needs, they are not yielding assets. Precious metals, though offering no nominal yield, have historically provided impressive real returns, with silver holding the potential for even greater gains in the future.