2023 marked another year of a pronounced supply-demand deficit in silver, driven by record industrial demand from robust global investments in the green economy. The most significant increase came from photovoltaics. In a recent revision for 2023, the Silver Institute and Metal Focus group bumped up their estimate of silver uptake in solar panels, indicating usage of approximately 200 million ounces of silver for the year. This represents a substantial increase from the approximately 110 million ounces used in 2021. Mirroring this growth, BloombergNEF upgraded its global solar build forecast to 413 GW in 2023 – up 125% over two years, with China accounting for nearly 60% of the installed volumes. The acceleration can, in part, be attributed to record-low prices for all types of solar panels, making adoption more affordable.
Meanwhile, solar panel innovation has reached an inflection point. In a recent opinion piece published on Streetwise Reports, market commentator and fund manager Chen Lin pointed out that upcoming generations of solar panels are anticipated to require 25-100% more silver for improved efficiency. Many experts in the field share the same optimism regarding the continued rapid growth of silver uptake in solar panels over the coming years. In particular, ANZ Bank expects photovoltaics to represent more than 50% of silver industrial demand by 2025, compared to about 20% in 2021.
On the supply front, annual mine production has remained rangebound between 800 and 900 million ounces over the last decade. The current structural deficit will likely persist for the foreseeable future unless numerous new primary silver mines are built or marginal mines resume production. Achieving either of these scenarios demands a prolonged period of elevated silver prices.
Light At The End Of The Tunnel? Precious Metals Rally
Throughout 2023, the volatility of silver prices persisted, primarily driven by the dynamic influence of the U.S. Federal Reserve's monetary policy. However, there appears to be light at the end of the tunnel. The start of last December welcomed a more dovish tone from the Fed, which fueled a precious metals rally. Gold broke above $2,100 per ounce (an all-time high), and silver nearly reached $26 per ounce (a multi-month high). By mid-December, the Fed released a more definitive signal for the end of the tightening cycle by keeping key interest rates steady and indicating three cuts in 2024.
With this in mind, companies like Silvercorp Metals Inc. (NYSEAMERICAN: SVM) (TSX: SVM) could potentially be undervalued relative to peers despite Silvercorp’s performance and growth strategy. Silvercorp is an established Canadian miner that boasts of a strong balance sheet and of combining a track record of profitability along with growth opportunities including fully-funded ‘organic’ growth within its existing low-cost mines, while also engaging in ongoing strategic M&A efforts.
Ying Mining District: Helping To Meet The Global Silver Demand
In 2004, the company began operations in China’s Ying Mining District which is known for its tremendous resource wealth, principally in silver-lead-zinc mineralization. After two years of exploration and development, the company began production in April 2006. The company reports that the operation proved to be extremely profitable, largely in part due to the high grades of the metals found at the site.
Over the next several years, Silvercorp expanded its footprint in the region and increased the production profile of the flagship operation. From 2007 to 2017, Silvercorp roughly tripled Ying’s silver output, delivering 5.9 million ounces in 2017 – solidifying the company’s status as China’s largest primary silver producer. Silvercorp has maintained strong operating margins at Ying while growing its production, with annual all-in sustaining costs remaining below $10/oz over the last seven years despite mounting inflationary pressures affecting miners globally. In fiscal 2023, Ying reported producing 6 million ounces of silver at an all-in sustaining cost of $9.73/oz, generating $63 million in income from mine operations and representing a peer-leading operating margin of 36%. The company is working to further improve the operation’s productivity and efficiency by enhancing mine mechanization and expanding milling capacity.
As silver becomes an increasingly integral component of the green economy, established pure-play producers like Silvercorp could play a more instrumental role in meeting the global industrial demand for silver. Anticipating further positive developments for Silvercorp in 2024, interested investors may want to stay tuned for additional news and analysis on the company. Readers interested in the latest updates on Silvercorp's performance and growth strategies can find additional information at silvercorpmetals.com/welcome.
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