"Newly Mined silver must replenish supply, but a geological problem stands in the way: Epithermal deposition or condensation near the earth's surface. Simply put, the richest silver deposits are nearest the surface of the earth. The deeper mines go, the less silver they tend to produce. The deeper the mine, the more expensive the silver."

-James U. Blanchard III
Silver Bonanza: How to Profit from the Coming Bull Market in Silver (1993)

Epithermal deposition is a geological term that accurately describes silver's distribution within the earth. As stated above, it means quite simply that the majority of silver is deposited near the surface of the earth's crust, and that the further one digs the less silver he will find to extract. This necessitates that silver will become more and more expensive as time waxes on, as it will become more and more expensive to mine. Just as the price of oil has risen dramatically because of a lack of easily exploitable oil and fears of peak production, so too will silver one day rise in price accordingly, as it is also an integral yet finite resource of the world. For the many uses of silver see: http://www.silverinstitute.org/uses.php.

Speaking of finite resources, it certainly wouldn't hurt to get a feel for how much silver resources are left in the world (below ground). Using the data from the USGS (U.S Geological Survey), found here: http://minerals.usgs.gov/minerals/pubs/commodity/, one discovers the following numbers:

(Revision)

Note: I believe that the actual amount of silver remaining below ground is much larger than those figures presented by the USGS below. The reason being that there are many unexplored areas in the world that are likely to house the next elephant supply of silver. The only problem is that the incentive to exploit these areas will require a much higher and sustained market price to justify the risks involved with production in these areas, as they are often located in places of environmental and political uncertainty. Also, many of these locations are remote, and the consequent problem of transporting to and accessing the refineries becomes another issue altogether.

Commodity:

Silver

• Annual Production (in metric tons): 20.0K*
• Reserves (m tons): 270.0K
• Resources (m tons): 570.0K
• Years of production that remain using reserves: 14
• Years of production that remain using resources: 29

Gold (same descriptive order as above)

• Annual Production (in metric tons): 2.6K
• Reserves (m tons): 43.0K
• Resources (m tons): 89.0K
• Years of production that remain using reserves: 17
• Years of production that remain using resources: 34

Lead

• Annual Production (in metric tons): 2.6M**
• Reserves (m tons): 67.0M
• Resources (m tons): 140.0M
• Years of production that remain using reserves: 23
• Years of production that remain using resources: 48

Zinc

• Annual Production (in metric tons): 8.5M
• Reserves (m tons): 220M
• Resources (m tons): 460.0M
• Years of production that remain using reserves: 26
• Years of production that remain using resources: 54

Copper

• Annual Production (in metric tons): 14.0M
• Reserves (m tons): 470.0M
• Resources (m tons): 940.0M
• Years of production that remain using reserves: 34
• Years of production that remain using resources: 67

Credit is given to both Ted Butler and Izzy Friedman, the first to form the above conclusion of silver's rarity using USGS numbers.

*K=thousands
**M=millions

Note: Platinum, Palladium, and Aluminum all have resource bases in excess of 100 years of production, and as such they are not displayed.

If the U.S Geological Data can be trusted, then silver is the rarest of all the metals left in the world, in relative terms, with a maximum of 29 years left of production using current resource numbers. Many argue that a dramatic increase in the price of silver will soon be leveled with the ramping up of production. There are several problems with this argument, especially in light of the above data.

• Silver Mines take years to move from the exploration stage to the production stage. Extensive drilling programs must be completed, along with feasibility studies, mining plans, geological surveys, and other necessary preparatory work, not to mention the construction of the mine itself.
• Silver is primarily a by-product metal, and therefore, even significantly higher prices of silver are not likely to be enough of a motivating force to move primary lead, zinc, or copper mines towards significantly higher production if the prices of those base metal do not rise in accordance.
• Since silver has been depressed in price for a long time, many more mining companies will choose to lock in at a price of say, $10/oz, by selling forward or hedging their future production of silver, sometimes several years in advance. If they turn out to misjudge the market, and silver rises to say, $50/oz, then the promises to deliver silver at $10/oz may never be met due to the bankruptcy of those same companies. If nothing else, they certainly will not be motivated to extract any more silver than they have to, since these miners know that they are being 'ripped-off'.
• Since the world's total silver resources amount to a mere 29 years worth of production demands, an increase in mining activity will only hasten the day of silver's permanent depletion. This is perhaps the greatest irony of all. (Remember that this day of depletion is not likely to occur in the near future as new resources will be discovered and exploited as the price of silver moves ever higher.)

If you ask a financial adviser about the merits of owning silver and gold, what do you think that they will tell you? Perhaps with the recent rise in price these commodities they would advise that you invest a small portion of your savings into them, but they will likely do so with reluctance and almost certainly without any real enthusiasm. You shouldn't trust them, not because they are bad people, but because they don't have a clue when it comes to bullish fundamentals behind silver, gold, and the many other metal commodities. This is the beauty of the thing, you have the potential to get in on the ground floor, and you don't even have to pay for any 'expert' advice. Believe it or not!

As an aside, silver just broke $8/oz today (11/16/05). This could be the start of something big. And although I normally advise people to avoid chart and graph analysis when it comes to silver, since it has proven its ability to defy them dramatically, a significant resistance level has been broken at around $7.80.

Regardless of whether silver trades at $7 of $8, it remains dirt cheap, but I do caution that the longer one waits, the less 'dirty' it will be. One day it should even come out looking like it ought to, the most lustrous of all metals. Won't that be something!

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Disclaimer

Information contained on the Silver In Scripture web site and published in both View My Portfolio and the Silver Stock Investment Newsletter is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained from these sources is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed therein are those of the publisher and are subject to change without notice. The information therein may become outdated and there is no obligation to update any such information. David Zurbuchen, entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in these publications or web site. PLEASE SEEK THE ADVICE OF PROFESSIONALS, AS APPROPRIATE, REGARDING THE EVALUATION OF ANY SPECIFIC SECURITY, REPORT, OPINION, ADVICE, OR OTHER CONTENT. We do not in any way warrant or guarantee the success of any action you take in reliance on the statements of the designated subsidiary.