Industry Trend Analysis - Silver Sector To Shine - MAR 2017

BMI View: Mexico ' s silver mining sector will see solid production growth over the coming years, supported by competitive operating costs, a solid project pipeline and improving silver prices.

Mexico, the world's largest silver producer, will benefit from a weak domestic currency and rising global silver prices, resulting in lower costs for miners and encourage a ramp-up in production. Our Country Risk team expects the Mexican peso to experience near-term volatility due to uncertainty over US President Trump's trade policy and forecasts the unit to weaken slightly in 2017 to MXN20.1/USD compared to MXN18.7/USD in 2016 ( see ' Ford ' s About Face Highlights MXN Vulnerability ' , January 6). Moreover, precious metal prices will continue to head higher over the coming months, with silver prices breaking up out of the downtrend that had persisted since mid-2016 ( see 'Quick View: Silver Breakout', February 2).

As such, we maintain a positive outlook on Mexico's silver sector, and expect production to increase from 184 million ounces (moz) in 2017 to 222moz by 2021, averaging 4.8% annual growth. For instance, in the first half of 2016, Mexico-based Fresnillo PLC reported a 5.2% y-o-y decrease in adjusted production cost due to the devaluation of the Mexican peso against the US dollar and lower electricity and diesel prices. The firm's Fresnillo and Saucito mines saw all-in sustaining costs (AISC) decline by 24.8% to USD8.3/oz and by 7.2% to USD5.5/oz, respectively. For the 2016 year, Fresnillo's silver output increased by 6.2% y-o-y to 45.7moz and expects 2017 production to reach 54.0-57.0moz.

Silver Set To Ramp Up
Mexico - Silver Mine Production (moz) & Growth (% y-o-y)
e/f = BMI estimate/forecast. Source: BMI, USGS

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