How the C-Factor Could Decimate 2020 Global Gold and Silver Production / Commodities / Gold & Silver 2020

Item: March 16, 2020. A hugepoly-metallic (gold, silver, copper) mining operation in Mongolia "has suspendedoperations" after authorities "restricted the movement of goods andpeople within the country."

Item: March 17. In Peru, one of the world's largestprimary silver-gold producers has its 4 mines "temporarily suspended"following the Government's Declared State of Emergency.

Item: March 18. A Canadian mining major suspendsconstruction of a $4.7b copper mine upgrade in Chile affecting 15,000 workers.

Item: March 20. Argentina declares a state ofemergency and imposes "a nationwide mandatory quarantine startingtoday." Silver and gold mines across the country move to halt operations,except for "a reduced workforce to ensure appropriate safety, security andenvironmental systems are maintained."

Item: March 30. Peruvian authorities extend theirhalt of transportation until at least April 13.

This list could be much longer, but you get the idea. Minersand explorers around the world are being told to stop production, move to"care and maintenance" or "disperse the workforce" – alldue to the C-Factor. Which of course refers to the rapidly – spreadingglobal pandemic known as novel coronavirus, or COVID-19.

Being a new strain that has not been previously identified inhumans, earns this virus the moniker of "novel." Enough is stillunknown about how it spreads and what it takes to halt the contagion, that eventhe experts still search for answers.

These unknowns – along with the government and public responseto it – means this is slated to become the most costly financial crisis inmodern history. Asset classes crater across the board, with mining sharesdiving alongside S&P 500 stalwarts.

What's surprising to those who do not remember 2008 is initiallyboth silver and gold tanked. In part it's because when funds – some of whom areleveraged 30:1 – get a margin call, they sell what they can. That includesprecious metals, further depressing the price.

The Paper Price Is Not the Physical Price

Beneath the surface, recent massive demand by the public forphysical silver and gold makes it apparent that the quoted "papermetals" price bears little reality to what a person pays – if they canfind the "hold in your hand" product at all.

An example: Although the COMEX shows roughly a $14/ounce papersilver price, physical metal – other than 1000 oz bars – is going for 30-80%over spot. In other words, this supposed $14 silver could cost you upwards of$20 the ounce. And, at some dealers, you should expect to pay as much as $2,000or more for that $1,650 1-oz gold piece.

The U.S. Mint has nearly run out of American Silver Eagles (ASEs)and extended back orders are the norm. Premiums have risen from about $3 to $8or even $10 over spot.

This Situation Is Novel in More Ways Than One

At this writing, most mines remain open. But thesuspension-of-production list steadily grows.

It's safe to say that operations in every country on the globehave been, or soon will be affected. Projected downtimes assume 2-3 weeks, butsome places are expecting a 6-week-plus hiatus.

The reality is that no one really knows how long this state ofaffairs will last, let alone return to normal. Even when a mill temporarilyshuts down, it's not just a matter of flipping a switch and returning tofull-scale production.

The metals, especially silver, may have seen their bestproduction levels for some time. Yields have steadily declined for the lastdecade.

Fewer large discoveries, increased regulations, costlyinfrastructure and longer lead times, have conspired to just about double thenumber of years it takes from discovery to production.

Being an industrial metal, silver consumption will probablydecline this year, but... as David Morgan has long noted,"Important price changes occur on the margin." He means thatinvestment demand is the big driver for silver prices. And lately, has thatdemand ever been robust!

Metals' dealers report the strongest buying they've witnessed inrecent years – some for as long as they've been in business. Selection is down,premiums are way up and delivery dates pushed out from days to somewhere on thehorizon.

Silver Is Finding Important New Uses

Readers in this space are aware of the almost daily new uses forwhich silver is being employed in industry and commerce. Now there are two newones – difficult to quantify initially, but unwise to ignore on the demandside.

An evolving silver-backed digital coin. First,is the build out of a new monetary vehicle called AGX Pay designedaround a vaulted silver-backed digital coin, enabled by the blockchain.

Its ultimate level of acceptance is yet to be determined, butthe coin's numerous uses, including spending it for merchandise and services,or simply holding as an investment bet on rising silver, make this anintriguing consideration.

Silver is a COVID-19 Killer. Second, it appearsthat more locales are using decontaminants to disinfect city streets, publicbuildings, and airport terminals.

One effective and non-toxic solution of which I'm aware is madeup of potassium iodide, water... and silver. How much silver? Hard to say rightnow, but as it becomes more widely used?

The Tectonic Plate Collision of High Demand and DecliningProduction Means That "Houston, We Have a Problem"

Few investors have considered that, as the ripple effect ofmines shutting down spreads (if only for a few weeks but possibly much longer),2020 gold, copper, and silver production are set to fall off a cliff.

Let's say there is only a 4-week period between when most mines"go offline" and return to normal output. It's possible that 10% ormore annual silver production may not take place at all!

2020 was already set to become the fourth straight year ofdeclining silver production. Last year, the total was about 1 billion ounces.

Ask yourself what's going to happen if the demand spike runs upagainst say, 100 million ounces less silver than was availablethe year before?

I would suggest the result will include skyrocketing premiums,and an even greater disconnect between the paper quote and the actual physicalsales price.

The Removal or Destruction of One-Tenth of SilverProduction

My use of the word "decimate" in this article’s titlewas intentional. Derived from the Latin word "decimates," it meant"the removal or destruction of one-tenth."

Depending on how much the C-Factor impacts mining in 2020, thepremise assuming "the destruction of one-tenth" of this year's silverproduction could turn out to be conservative by half.

If for some inexplicable reason you're still waiting to acquirethe silver (or gold) you hope topurchase, the question right now is, "How lucky to you feel?"

David Smith isSenior Analyst for TheMorganReport.com and a regular contributor to MoneyMetals.com aswell as the LODE Cryptographic Silver Monetary System Project. He hasinvestigated precious metals’ mines and exploration sites in Argentina, Chile,Peru, Mexico, Bolivia, China, Canada and the U.S. He shares resource sectorobservations withr eaders, the media and North American investment conferenceattendees.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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