Lack of mines to squeeze supply – by Pat Heller (Numismatic News – January 24, 2019)

Numismatic News

What a difference a decade makes! Ten years ago, gold and silver prices were on a roll. The price of silver had increased 41 percent from Dec. 5, 2008, to Feb. 11, 2009. The price of gold rose 1 percent from Jan. 7, 2009, to Feb. 11, 2009.

With gold around $900 and silver above $12 per ounce 10 years ago, mining companies were enjoying expanded profit margins above their marginal costs. In that environment, gold and silver mining companies were eagerly looking to find and develop new mines.

Once a potential mine site was discovered, a mining company would bring in an independent geologist to confirm that the minimum amount of recoverable metal would make the development of a mine economically feasible. Demand for geologists to confirm these discoveries was so strong that it was not unusual for the mining companies to wait 18 months before these specialists worked through their backlog of jobs.

The geologists’ reports, produced in the industry’s standard format, would then be used to seek financing for the costs of establishing the mine site. At the time, the span from finding a possible new mine to developing the infrastructure to going into production was starting to lengthen from its previous average of about three years.

The financiers had to consider the risks of such a delay before they could see a return on their loans in determining whether to extend the credit and what interest rate they would charge. But with the then-high profit margins, financing tended to be available for those in the mining industry with a proven track record.

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