The coronavirus measures have affected the production of precious metals in some unexpected ways. The decreasing supply of ore and metals can have an interesting price impact down the line. Fortuna Silver Mines Inc. has now reported its production for Q1 2020, which paints an interesting picture.
Fortuna Silver Mines Inc Report
As one of the many mining companies active in Mexico, the figures shared by Fortuna Silver Mines Inc. are very interesting to keep an eye on. It also paints an interesting picture as to how the coronavirus measures have affected this particular operation throughout the first quarter of 2020.
As is to be expected, the company has been able to maintain a degree of gold and silver production throughout the first three months. As of right now, the operations in Mexico have been suspended completely, a countermeasure that may remain in place until the end of Q2 2020.
When looking at the numbers, Fortuna Silver Mines Inc has had a decent quarter. Nearly 10 fewer tonnes of processed ore were milled compared to Q1 2019.
Recovery rates for silver are up slightly, yet its overall production has decreased by over 420,000 ounces. A very tough situation, albeit it is to be expected due to the spreading of COVID-19.
As far as gold is concerned, the recovery percentage is down slightly as well, and production decreased by over 3,000 ounces. It is evident that the San Jose mine in Mexico is very beneficial to this company under normal circumstances, thus resuming the momentum will only become more important moving forward. Unfortunately, the coronavirus crisis may hamper those expectations for some time to come.
Caylloma Results are Equally Promising
Fortuna Silver Mines Inc also operates a mine in Caylloma, Peru. That venture is, due to the ongoing coronavirus crisis, on a reduced production rate. How long that situation will remain in place, will primarily depend on how the coronavirus situation evolves in Peru and the rest of Latin America.
In terms of this mine’s silver operations, there is a minor decrease in recovery percentage, albeit the production increased by roughly 15,000 ounces. A somewhat unexpected turn of events, and one that highlights what the future may hold for this operation.
On the gold side of the spectrum, there is a definite decrease in recovery percentage – 46.39% is still far from ideal – as well as production, which decreased by over 100 ounces. Once the situation returns to normal, it will be interesting to see how all of these figures evolve throughout the quarters to come.
Metal By-products Production Increases
It is interesting to note that the Caylloma mine allows Fortuna Silver Mines Inc to increase its metal by-products production. More specifically, the production of both lead and zinc has increased by 8% and 5% respectively. This is a somewhat unexpected “bonus” for this mining operation.
As such, it is evident that even mining operators need to be aware of the diversified production at their disposal. While it will not help much in terms of gold and silver production, these figures go to show that not all hope is lost during the coronavirus crisis.
As the week trucks along, any hopes of seeing surprising bullish momentum for both silver and gold have been squashed. Futures for both precious metals have begun to slip, primarily due to lesser demand in overseas markets.
Gold and Silver Futures Begin to Slip
It was seemingly a matter of time until short-term volatility would affect gold and silver prices once again. When it comes to precious metals futures, the current momentum doesn’t look all that promising. Even in India, the futures for gold and silver are slipping, despite noting higher demand for either commodity compared to the rest of the world.
Silver contracts for May 2020 are down by 1.2%, which is not entirely surprising. This is perfectly in line with what is happening on the international markets. Global silver prices are dropping lower, although the deficit is not all that large as one may think.
For gold futures, a similar scenario has begun playing out. The gold futures are down by 0.49%, which isn’t necessarily something to be concerned about just yet. However, deliveries for June and August 2020 are also declining, indicating that this negative trend may continue.
It is worth noting that global gold prices are not following this bearish sentiment as of yet. In fact, the gold price has recently gone through a 2.5% increase, as it is now approaching the $1,700 mark once again. Some analysts expect a new all-time high for gold later this year, although there will be some volatility to contend with before that happens.
Weak International Demand is a Problem
Looking at the overall market sentiment, it is not difficult to determine why the futures for gold and silver are falling. There is a lack of international demand for physical precious metals due to the coronavirus pandemic. That was entirely to be expected, yet it remains to be seen how this situation evolves exactly.
Combined with the lower production of both precious metals, the short-term future remains rather uncertain. That is not necessarily a validation of the bearish trend, as uncertainty can easily trigger upward market momentum. For now, the futures seem to dictate the short-term momentum, but that doesn’t mean the situation can’t turn around.
The impact of the global coronavirus continues to result in surprising developments. Mexico is the next region to curb its silver production. It is believed that this situation may remain in place for a month or perhaps even longer.
Silver Production Slows Down in Mexico
Health concerns imposed by the global coronavirus crisis cannot be taken lightly. It is virtually impossible for non-essential businesses to remain operational during the current circumstances. This has also begun to affect companies involved in the production of precious metals.
In Mexico, there will be a major change for most silver mines. Multiple locations will have to shut down their operations for at least one full month. This measure isn’t entirely surprising, as similar restrictions have been put in place across the world.
These measures will have a severe impact on the global production of silver. It is estimated that Mexico produces 6,300 metric tons of silver in 2019. This represents 23% of the global mine supply, further stressing the importance of Mexican gold mines.
It is safe to say that Mexico is the largest silver-producing country in the world today. With its domestic silver mines now being shut down for at least 30 days, the country’s output will take a significant hit. Interrupts of silver-mine productions should make an impact on the market, albeit it is difficult to predict what will happen exactly.
No Automatic Silver Price Increase
One possible consequence to the decrease in silver production in Mexico is how it could affect the price of this precious metal. That being said, analysts are not convinced this will result in a higher price. A reduced supply of a commodity can happen every now and then. Industrial demand for silver has also decreased massively, potentially offsetting the production decrease impact.
There are also transportation issues to keep in mind. Mexico, but other countries as well, note issues when moving silver from one country to the next. These shipments are taken care of through air freight, but moving supplies has proven difficult. It would appear that most planes carrying air freight are not getting off the ground.
While the cards are stacking up to warrant a silver price increase, the market remains incredibly unpredictable. With lower demand, and no real increased interest from investors, the silver price may remain at a status quo for some time to come. Forecasting a market outlook is difficult these days, thus anything can happen when traders least expect it.
Several gold mines around the globe have been forced to halt productions or lower their output significantly. In Mongolia, Steppe Gold Limited is preparing to begin producing and processing gold for the foreseeable future.
Steppe Gold Takes the Opposite Approach
Global coronavirus concerns are forcing many gold refineries to lower through bullion output. This will, in turn, create a degree of scarcity that may drive gold prices higher in the process. However, not all processing plants are subject to this reduced production guideline. Some of them are now only now venturing into the world of ore processing.
Steppe Gold Limited is one interesting example in this regard. Its ATO Gold Mine in Mongolia has been given the green light to begin ore processing. With gold ore being stacked and going through the leach pad, the recovery of gold can begin. It is expected that this firm will achieve a recovery rate of roughly 70%.
Initial projections indicate that ATO Gold Mine will recover $38 million in gold in the near future. That is a significant amount, especially for a new venture in Mongolia like this one. All of the production of this mine will aid the company in achieving its goal of 60,000 ounces in 2020. Currently, it costs the company roughly $500 per ounce to recover gold from the ore.
Coronavirus Creates a Crisis for Others
This news coming out of Mongolia is rather surprising. Unlike other countries, it would appear that this region is still providing ample access to gold deposits. That is good news for Mongolia, especially now that other regions are forcing mines to shut down production or decrease it significantly.
In Switzerland, several mines have been asked to reduce output due to the coronavirus crisis. That move will undoubtedly lead to more scarcity of this precious metal. However, now that Steppe Gold Limited is stepping up its commercial mining, the scarcity factor may not necessarily come into play right away.
In South Africa, there are concerns over the gold mining production as well. Domestic mining companies expect to be shut down due to the coronavirus crisis. This will not only affect the production of gold, but also coal, iron, platinum, and palladium.
It is expected that furnaces and underground mines may be put on “maintenance” mode. That will allow companies to resume operations in the future, but for now, everything will have to be halted. Preventing permanent damage to this sector is the main order of business. The South African Minerals Council will explore possible options in this regard.
Despite some signs of a market recovery, the volatility is far from over. In fact, the global coronavirus crisis will only make a bigger mark on the markets as more time progresses.
Coronavirus Market Volatility Isn’t Over
Several factors contribute to the uneasy market momentum around the globe. Investors are genuinely concerned as to what the future may hold. No investment appears to be stable or worthwhile right now, Every day the stock markets open, they note immediate losses.
Furthermore, not all countries have put proper coronavirus measures in place. Every day, an extra country appears to go into lockdown. That creates a strain on the local economy, forcing banks to take unusual measures. Quantitative easing is the name of the game as of right now, especially in the United States and Europe.
Injecting this unlimited liquidity into domestic economies is a dangerous game. It seems to confirm how the central banks are giving up on all traditional investments. This doesn’t bode well for stocks, equities, bonds, and treasuries. As more liquidity pours in, the “dumping” of these traditional assets only appears to intensify.
No country can escape the grasp of this volatility either. In the US and Europe, the situation is only growing worse over time. It now seems that Asian markets are recovering a bit. It is still too early to determine if the coronavirus crisis is under control in that part of the world.
Other markets waiting to be affected include Australia and New Zealand. Not much news comes out of those regions regarding COVID-19. In New Zealand, people are calling from “improved measures” to thwart the virus. How those measures will affect the financial markets, is difficult to predict.
One announcement has already been made by the Reserve Bank of New Zealand. The institution will buy back NZ$30 billion in government bonds. That approach is similar to what is happening in the US and Europe lately. Unfortunately, those measures are not making much of a positive impact. The demand for alternative assets, such as gold, silver, and Bitcoin, will not slow down anytime soon.