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.
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...
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