Silver Miners’ Q3’20 Fundamentals

Blank data fields mean a company hadn’t reported that particular data by mid-November as Q3’s earnings season was ending. And percentage changes aren’t included if they would be either misleading or not meaningful. The main examples are comparing two negative numbers and when data shifts from positive to negative or vice versa over this past year. These elite silver miners showed major improvements last quarter.

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Production is the lifeblood of the silver-mining industry, and the SIL top 15’s collective output in Q3 was mixed. Together these major silver miners produced 61.4m ounces last quarter. Sequentially from the lockdown-plagued Q2’20, that was outstanding 13.7% quarter-on-quarter growth. When governments authorized shut-down silver mines to resume operations again, these companies were quick to spin back up.

Nevertheless, the national lockdowns’ serious impacts on global silver output lingered in Q3. That 61.4m ounces the SIL top 15 produced were still down a sharp 13.9% year-over-year from Q3’19! Outside of the preceding peak-lockdown quarter’s 26.0% YoY plummeting, that was the worst seen in all the years I’ve been working on this research thread. But that output was skewed low by the endless shuffling in SIL’s ranks.

A year ago in Q3’19, a British gold-and-silver miner called Hochschild Mining was this ETF’s 14th-biggest component stock. SIL essentially weights its holdings by silver stocks’ market capitalizations. But in mid-November, this company had slipped to 16th place. Replacing it was the non-producing Canadian silver explorer SilverCrest Metals. That pushed Hochschild’s 3,085k ounces produced in Q3’20 out of the SIL top 15.

Adding that back in yields total major-silver-miner output of 64.4m ounces last quarter, which is down a still-big-but-less-extreme 9.5% YoY. The elite silver miners are heavily concentrated in countries that suffered the longest lockdowns, which spilled into Q3. Those are Mexico and Peru, which accounted for 23% and 16% of 2019’s total global silver output per silver’s leading fundamental authority the Silver Institute.

The SIL-top-15 silver miners also continued to contend with COVID-19 beyond the lingering lockdowns. That includes implementing costly and disruptive measures to slow this virus’s spread, identify workers infected, and quarantine them. This led to widespread labor shortages, forcing many silver mines to operate with reduced staffing which is less efficient. Major silver miners’ quarterlies detailed some of the challenges...

“During Q3 2020, seven of Pan American’s nine operations were operating with limited workforce levels in order to accommodate COVID-19 related protocols. Two of the Company’s operations, Huaron and Morococha in Peru, were suspended for most of Q3 2020, having previously been returned to care and maintenance on July 20, 2020, because of an increase in workers testing positive for COVID-19.”

Pan American Silver’s Q3 report continued “The Company began gradually redeploying its workforce at these mines over the last two weeks of September after intensive health screenings and testing. Huaron and Morococha resumed operations at the end of Q3 2020.”In Q1’20 before the pandemic lockdowns, these two mines accounted for 22% of PAAS’s silver output. Mines being stuck offline really slams production.

First Majestic Silver, which SIL holds under its Canadian stock listing, had ongoing COVID-19 struggles last quarter too. “Worker availability is a challenge amidst the COVID-19 pandemic but has been gradually improving and is being mitigated by increasing the use of temporary workers and contractors to replace vulnerable workers.”That company said those employees accounted for 1/9th of its mine workforce.

Mexico’s Ministry of Health defines these as people at least 60 years old or suffering from either pre-existing health conditions or compromised immune systems. First Majestic believes COVID-19 infections are such an ongoing threat to operations that it is “also in the process of constructing Polymerase Chain Reaction (“PCR”) laboratory test facilities on site at San Dimas and partnering with test labs at Santa Elena”!

So it is certainly not business as usual for the major silver miners, which are again concentrated in Mexico and Peru since they host the biggest silver deposits. In mid-November as Q3’s earnings season wrapped up, these two countries ranked 11th and 12th in the world in terms of cumulative cases of COVID-19 since testing started. In terms of COVID-19-attributed deaths they fared even worse, at 4th and 10th globally!

These major silver miners’ gold operations, some standalone mines, and some byproducts from silver mines are also largely located in these same countries. So it isn’t surprising that the SIL top 15’s total gold output in Q3’20 mirrored silver’s. The 1,355k ounces these miners produced surged 12.3% QoQ from Q2’20’s lockdown nadir, in line with silver’s 13.7%. But it fell 14.4% YoY from Q3’19, pacing silver’s 13.9%.

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