By-Product Mining
Also: by-product mining, co-product recovery, secondary output mining
By-product mining refers to the recovery of a precious metal as a by-product of mining another, primarily targeted raw material.
In by-product mining, a precious metal is obtained not as the main objective but as a metallurgical by-product when processing another ore. The primary metal – often copper, lead, zinc or nickel – bears the bulk of the mining and processing costs; the precious metal is recovered essentially free of charge and considerably improves the mine's overall economics.
Significance for the Precious Metals Markets
Silver in particular is highly dependent on by-product mining: according to estimates by the Silver Institute, around 70–75 % of global silver mine production comes from mines whose primary target is copper, lead or zinc. The same applies to palladium, a substantial share of which is recovered as a by-product from South African platinum mines and Russian nickel operations.
This structure has an important market-economic consequence: the supply of by-product metals barely responds to their own price. If the silver price rises sharply, a copper mine will not expand its production for that reason alone – the production decision is driven by the copper market. Conversely, silver supply also remains high when the silver price falls, as long as copper is profitable.
Cost Accounting: By-Product Credit
In the mining industry, the revenue from by-products is offset as a by-product credit. It reduces the effective production costs (all-in sustaining costs, AISC) of the main metal:
AISC (net) = Total costs − By-product credits
A copper producer that also recovers significant amounts of silver and gold can thereby report considerably lower net costs than a pure silver mine.
Typical By-Product Constellations
| Primary metal | Common precious metal by-products |
|---|---|
| Copper | Silver, gold, selenium, tellurium |
| Lead / zinc | Silver, indium, germanium |
| Nickel | Palladium, platinum, cobalt |
| Platinum (PGM) | Palladium, rhodium, iridium, ruthenium |
Effects on Supply and Price
Because by-product supply fluctuates pro-cyclically with the primary metal, boom phases in the base-metal industry can lead to an oversupply of silver or palladium – independently of precious metals demand. On historical price charts, this effect can sometimes be read as a price dampener during times of high industrial output.
In Brief
By-product mining accounts for a large part of global silver and palladium supply and largely decouples that supply from its own price – a structural factor that market observers should always take into account in supply and demand analysis.