KEY POINTS
● Bolivia, a country blessed with mineral richness, is looking to revitalize its mining industry.
● Bolivia has emerging world-class silver projects, some at an advanced stage, positioning the country as a key potential player in the global silver supply chain.
● Silver is at the cusp of a bull run thanks to its safe-haven appeal, anticipated monetary policy easing, and strong macro fundamentals driven by accelerating photovoltaic demand.
In the heart of South America, Bolivia has a long-standing reputation as a nation rich in history and culture. Positioned advantageously thanks to its mineral richness, the country is looking to revitalize its once thriving mining industry.
Bolivia celebrated the lowest inflation in South America, a stark contrast with its neighbors. In 2023, the Bolivian economy emerged as a top performer in South America, resisting internal and global challenges. The country's GDP grew by 2.21% in Q2 (third highest growth rate in the region), backed by a significant 7.3% increase in domestic demand, while keeping inflation low at 1.5%.
President Luis Arce noted in a recent press conference that his outlook for 2024 remains upbeat with growth expected to surpass global forecasts. He pointed out that key sectors like hospitality and aviation are showing strong recovery signs. With public debt at a sustainable 29.4% and the lowest urban unemployment rate in the region at 3.6%, Bolivia's 2024 fiscal policy, aiming for a 3.71% GDP growth and a 3.60% inflation rate, sets a positive tone for continued economic progress. Against this backdrop, some challenges remain, placing the country at a unique crossroad.
Bolivia's economy has traditionally been heavily reliant on commodity exports, notably minerals, oil and gas, and agricultural products. The steady decline in natural gas production since 2015, is attributed to a lack of new gas discoveries. Environmental challenges such as droughts and wildfires, have placed a strain on the country's agricultural sector. In response, the Bolivian Government focused on its mineral resource sector to boost the country's economy.
Bolivia also grappled with internal economic challenges, including limited industrial diversification and a reliance on state-led economic models. This approach has sometimes led to inefficiencies and a slower response to global economic shifts.
Despite the attractive fundamentals Bolivia offers investors, foreign direct investment is heavily dependent on political and fiscal stability. A history of unstable government and policies has led to uncertainty and hesitancy among foreign investors, requiring time to re-establish confidence. That said, the dust has settled, and recent developments indicate a shift toward a more stable environment.
Domestic challenges aside, Bolivia looks to leverage its significant mineral endowment to build a more resilient economy. However, recognizing the country's limitations, the Government is increasingly turning to foreign companies to provide the necessary capital and technical expertise for developing and operating resource projects. Below, we delve into the silver's market dynamics and explore a key player at the forefront of working to reshape Bolivia's silver landscape.
Market Dynamics Driving Silver
Silver is at the cusp of a bull run, and it is noteworthy that among some banks, analysts prefer silver to gold. The price of the precious yellow metal is currently above $2,000 an ounce (close to an all-time high set last December), translating to a gold-silver ratio of around 90. This ratio tracks substantially above the 50-70 level that dominated the 21st century, providing a long runway for the silver price to catch up. While pricing volatility is expected to persist in the near-term, silver's market outlook for 2024 remains bright, driven by its safe-haven appeal and the prospects of Fed rate cuts. Looking further ahead, silver's diverse industrial applications, particularly in electronics and the rapidly expanding photovoltaic industry, underpin steady demand.
Solar panels in the driver seat for silver demand. Market commentator Chen Lin recently pointed out that the photovoltaic sector alone has witnessed a substantial increase in silver usage, from 110 million oz in 2021 to about 200 million oz in 2023, based on data from the Silver Institute. This increase is attributed to advancements and cost reductions in solar technologies, making adoptions more affordable. Novel technologies like TOPCon and HJT are expected to significantly boost silver content in solar panels, with experts anticipating a 25-150% increase in silver needed for the future generation of panels. It is projected that photovoltaic will account for more than 50% of silver's industrial demand by 2025, compared to 20% in 2021. However, with mine supply struggling to keep pace with the increasing demand, partly reflecting a steadily declining global reserve and grade profile and a lack of quality silver projects in the pipeline, a long-term structural shortage is expected to persist for decades to come.
Bolivia—The Land Of Silver Giants
Bolivia is home to the legendary Cerro Rico silver deposit, which has been in continuous production since 1545 and, at one point, represented 20% of the global silver supply. Today, only a handful of key players dominate Bolivia's silver sector. These include silver mining giant Pan American Silver Corp (NASDAQ: PAAS), which has established itself as a significant silver producer in the country.
On the mineral resource developer front, New Pacific Metals (TSX-V: NUAG; NYSE American: NEWP), of which Pan American owns 11% (second largest shareholder), is riding the crest of Bolivia's next silver wave with its three quality projects in different stages of development, and investors are paying close attention.
New Pacific Metals: First-Mover At An Advanced Stage
New Pacific Metals, capitalizing on its first-mover advantage in Bolivia, has garnered significant attention with two major discoveries: Silver Sand and Carangas. The company has been continuously working and investing in the country since 2016, establishing a reputation in Bolivia as a reliable partner. Its flagship project, Silver Sand, is one of Bolivia's most advanced projects and is well-positioned to become the next silver mine developed in the country.
Located about an hour's drive east of the Cerro Rico deposit, Silver Sand stands out as one of the world's largest undeveloped, pure silver deposits, containing about 215 million ounces of total silver resources, with a substantial 94% classified under the high-confidence measured and indicated category.
The project's economic potential is illustrated by its 2023 preliminary economic assessment (PEA). This study forecasts that Silver Sand will produce 171 million ounces of silver over a 14-year life span at a remarkably low all-in sustaining cost of around US$10/oz, positioning it as one of the largest silver operations globally. The project's post-tax net present value is estimated at US$726 million, with an attractive internal rate of return of 39% and a swift payback period of under two years. Looking ahead to 2024, New Pacific Metals anticipates releasing a pre-feasibility study and working towards an environmental permit, advancing Silver Sand towards development readiness.
Additionally, the company is advancing its second project, Carangas, a large-scale silver-gold polymetallic deposit containing more than 250 million ounces of silver, 1.8 million ounces of gold, 3 billion pounds of zinc and 1.5 billion pounds of lead. The focus at Carangas this year is the project's preliminary economic assessment, which is on track for completion by the middle of 2024. Currently, the market overlooks the value of Carangas, suggesting a latent advantage for New Pacific Metals' investors.
New Pacific's third project, Silverstrike, consists of a 45 km2 land package previously explored by global mining behemoth Rio Tinto (ASX: RIO). Preliminary exploration by New Pacific has identified a number of silver and gold targets exhibiting characteristics that are geologically similar to those discovered at the other two projects. However, the company has decided to park this project and maintain focus and resources to advance Silver Sand and Carangas.
Nevertheless, Silverstrike's prospective nature further demonstrates Bolivia's relatively untapped mineral resource potential, placing the country in an advantageous position to reestablish itself as a significant mining player in Latin America. However, time is of the essence. The lengthy timeline required to bring a project from exploration to production, combined with the dwindling reserves in existing mines, underscores the urgency for readily actionable projects. As such, companies with advanced-stage projects, such as New Pacific, are leading the charge to change Bolivia's mining landscape for the better.
Disclaimer: The information provided in this article is for informational purposes only and is not intended as investment advice. Readers should conduct their own research and consult with a financial advisor before making any investment decisions. The views and opinions expressed in this article do not constitute a recommendation to buy or sell any securities.
