Which company owns the largest silver reserve in Australia?

Summary

• Australia is the seventh largest silver producer in the world and has an estimated reserve of around 90,000 tonnes.
• The largest silver mine in Australia is the Cannington underground mine, owned and operated by South32.
• The rising prices of commodities reflected in the S32 share price as well, recording a 21.2% year-to-date return.

According to GlobalData, global silver production is estimated to increase by a decent 8.1% to around 918.3 million ounces in 2021. Due to impacts of COVID-19, global silver mine production fell by an estimated 2.4% in 2020, down to 850 million ounces.

Image source: Phawat, Shutterstock

All three top silver producers of the world – China, Mexico and Peru – were hit hard by the COVID-19 pandemic as stringent lockdowns and restrictions took a toll on mining operations. However, despite a subdued year for silver production, GlobalData expects a rebound in 2021 and forecast the production of more than 1 billion ounces by 2024. That’s an approximate 3.2% compound annual growth rate.

Australia is the seventh largest silver producer in the world and has an estimated reserve of around 90,000 tonnes, third only to Peru and Poland. With silver production picking up pace in 2021 and the coming years, Australian silver miners are poised to reap gains. On that note, let’s have a look at an ASX miner that holds the largest reserve of silver in the country.

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Which is the largest silver reserve in Australia and who owns it?

Located in the north-west region of Queensland, the Cannington underground mine holds the crown for being the largest silver mine in Australia. Apart from producing silver, the Cannington mine is also rich in lead and zinc. It is owned by South32 Limited (ASX:S32), which is a newly formed division of previous owners, BHP Billiton. In fact, the Cannington mine holds one of the world’s largest silver and lead deposits. 

Image Source: Copyright © 2021 Kalkine Media

This mine has been in production since the last 20 years and requires about 550 full-time employees and up to 300 contractors to keep up the production. At Cannington, South32 is able to reliably get the product from the mine to market, on the back of a high-capacity processing plant, a ship loader at the Port of Townsville and a road-to-rail transfer facility.

Almost all of the country’s silver is produced as a by-product of underground copper or lead-zinc mines. But South32’s Cannington mine is one of the very few silver deposits in Australia which produces silver as a principal extracted commodity (along with lead).

Recent operational update of South32

The company recorded a statutory net profit after tax (NPAT) of US$53 million in H1 FY21, supported by a 9% reduction in the cost base and higher sales volumes. The strong production volumes and the realisation of further cost efficiencies on the back of lower operating unit costs have resulted in a 4% increase in underlying earnings to US$136 million in H1 FY21.

Looking ahead, the management has raised the production guidance at the Cannington mine, Illawarra Metallurgical Coal and Cerro Matoso. It also estimates that additional production volumes and ongoing cost efficiencies across the companies’ operations would help offset weaker US dollar headwinds.

The company is off to a strong start in 2021, as it continues to build on strong recent operating performance. South32’s net cash, as of the end of January 2021, has increased to US$452 million, from US$275 million on 31 December 2020.

The management is now witnessing a rebound in demand for some of the key commodities from other markets outside of China. The management is confident and affirms that South32 is well-positioned to benefit as the global economy recovers.

Stock performance of South32

The impact of rising prices of commodities was reflected in the Australian miner's share price as well. The YTD performance of S32, compared to the broader market index, the ASX 200, has been impressive. The S32 share price (Yellow line in the below chart) has comfortably outperformed the ASX 200 (Purple line in the below chart) delivering a healthy return of 21.2%, beating the ASX 200’s return of 12.67%

Image Source: Refinitiv, Analysis: Team Kalkine

However, when compared to its peers, the performance doesn’t seem to be exceptionally well. Champion Iron Limited (ASX:CIA) has performed quite well, delivering a 38.74% return year-to-date, primarily due to skyrocketing iron ore prices this year.

 Image Source: Refinitiv, Analysis: Team Kalkine

Its other two peers, BlueScope Limited (ASX:BSL) and Sims Metals Management (ASX:SGM), have had a tough competition, delivering 26.91% and 23.93% year-to-date return, respectively. When compared to its rivals, South32 has performed the worst (although still standing firm with a 21.2% return in the same period). 

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