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Comparing Silver Miners’ Reserves

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Reserve replacement

Precious metal miners (SIL) (GDXJ) face the problem of compensating for every ounce they take out of the ground. While mines have finite lives, companies operating them don’t, so it’s important to look at miners’ reserves and resource estimates and the assumptions used to calculate them.

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Reserve additions

Coeur Mining (CDE) reported a 9.0% rise in its silver-equivalent reserves to 328.5 million ounces. Silver reserves rose 13.0% to 176.6 million ounces.

The rise in reserves was mainly due to its successful resource conversion at Rochester, which added 32.7 million silver ounces and 326,000 gold ounces. The fall in reserves at other mines was mainly due to depletion.

At the end of 2016, Pan American Silver (PAAS) reported silver reserves of 285.8 million ounces, an addition of 2% YoY (year-over-year). The company added 38.1 million ounces of new reserves through exploration, while 32.4 million ounces were depleted through mining. The prices used to estimate mineral reserves for 2016 were $18.50 per ounce of silver and $1,300 per ounce of gold, compared with $17 per ounce of silver and $1,180 per ounce of gold in 2015.

Reserve declines

Hecla Mining’s (HL) silver reserves at the end of 2016 were 172.3 million ounces, a decline of 2% YoY. Its gold reserves also fell, by 3% to 2.0 million ounces. Among peers, Hecla uses the most conservative metal price assumptions to calculate reserves. While its silver price assumption was $14.50 per ounce, its gold price assumption was $1,200 per ounce.

First Majestic Silver (AG) has not yet released its mineral reserve and resource statement for 2016. At the end of 2015, its silver equivalent reserves stood at 135.26 million ounces. Tahoe Resources (TAHO) reported silver reserves of 268 million ounces at its Escobal mine, a decline of 13.5% YoY.

In 2016, all companies’ reserves fell, except for Coeur’s and Pan American’s. Exploration activity wasn’t sufficient to cover depletions during the year, and this could be a concerning trend in the long term. However, many industry participants believe that declining reserve replacements could support higher gold prices. In the next part of this series, we’ll look at the reserve grades for these miners and how they impact costs.

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