By-Product Mining
Also: by-product mining, secondary recovery, co-product mining
By-product mining refers to the recovery of a precious metal as a secondary product during the extraction of another, primarily targeted raw material.
In by-product mining a precious metal is not the main goal but arises as a metallurgical secondary product during the processing of another ore. The primary metal – often copper, lead, zinc or nickel – bears the main burden of the extraction and processing costs; the precious metal is recovered virtually for free and considerably improves the overall economics of the mine.
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 considerable 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 hardly 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 guided by the copper market. Conversely, silver supply also stays 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 credited as a by-product credit. It lowers the effective production costs (all-in sustaining costs, AISC) of the main metal:
AISC (net) = total costs − by-product credits
A copper producer that co-recovers substantial quantities of silver and gold can thus 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
Since by-product supply fluctuates pro-cyclically with the primary metal, boom phases of the base metal industry can lead to an oversupply of silver or palladium – independently of precious metal demand. On historical price charts this effect can sometimes be read as a price damper in times of high industrial production.
In brief
By-product mining accounts for a large part of global silver and palladium supply and largely decouples this supply from its own price – a structural factor that market observers should always take into account in supply and demand analysis.