Tarnished Silver

Humankind has had a long history with silver, much of it messy.  Slag heaps uncovered on the islands of the Aegean Sea tell the tale of smelting silver from lead as far back as the 4000 BC.  Roman conquerors pushing into Britain in the first century AD were motivated in part by ample lead deposits that held promise of lucrative silver content.  Later the rise of the British and European national interests sent ambitious explorers round the world looking for precious metal.  Discoveries of vast ore deposits in both South and North America led to widespread pollution throughout both continents from mercury used to coax silver from lead ores. 

Sediment samples taken from lakes in the Huancavelica region in the Peruvian Andes reveal the Europeans were not the first to muck up the American environment in pursuit of silver riches.  The sediment shows mining pollution in the Peruvian lakes stretching back over 3500 years.  Peak mercury releases were in 500 BC and 1450 AD as the Chavin and Inca peoples each stepped up silver mining.

Today mercury is widely used to separate silver from its companion ores.  When released into the air during smelting, mercury eventually settles into water and onto agricultural land.  The release of mercury into the atmosphere is clearly undesirable, because as an element mercury never breaks down.    Once it enters the food chain it simply accumulates in the body.  In living beings mercury is a neurotoxin.  Even in small quantities mercury can affect the brain, heart, kidneys and lungs at all ages.  

Mercury poisoning is not the only threat associated with mining silver.  Both ground and surface water can be contaminated with other chemicals used in the refining process such as chlorides, sulfur compounds, hydrochloric acid, lime and soda ash. The removal of the ‘overburden’ or surface soil, plants and rocks can result in excessive air borne particulates.  Soil erosion and excessive sediments in surface water often accompanies open-pit mining operations.  The balance of animal populations can be disrupted when large amounts of plants for food and shelter are removed.  

Watershed contamination is a threat posed by silver mining that should not be overlooked.  A study completed in the early 2000s by the U.S. Geological Survey in Montana’s Boulder River watershed found concentrations of toxic trace elements in stream water, in streambed sediment and in aquatic organisms populating watershed streams.  Major tributaries of the Boulder River were found to have elevated concentrations of copper, lead and zinc that impaired aquatic life.  All species of fish were absent downstream from large mines in the area and further downstream fish were shown to be less healthy due to exposures to trace elements through their gills.  Pollution impacts were found as far as fifty-five miles downstream from mines sites along the Boulder River.  The study results explain how easily mining activity has degraded our environment.  The U.S. Environmental Protection Agency (EPA) estimates that mine waste has contaminated more than 40% of the watersheds in the Western U.S.

What is most astounding in the USGS study of the Boulder River is that historic and not recent mining activity produced this pollution.  Mining in the area began in the mid-1800s and ended in the 1970s.  Peak mine production was in the late 1800s.  Human and animal populations along the river are still suffering from the impact of wanton mine waste and disregard for the environment.  

Even today many mining industry personnel often refer to environmental concerns as a nuisance.  Environmental standards are often met with more lip service than compliance.  There are some exceptions.

In 2019, First Majestic Silver Corporation (AG:  NYSE) published its first environmental, social, governance and sustainability report.  The ninth largest silver producer in the world, First Majestic operates silver and gold mines in Mexico.  The company claims recycling of 80% of its water consumption and plantings of over 100,000 native plants to reforest mining areas.  Even if its efforts are nominal, the report delivers some transparency to First Majestic’s mining practices that was not available to investors a century ago.  

Hecla Mining’s (HL:  NYSE) Lucky Friday silver mine in Idaho is typical of modern silver production as largely a by-product of industrial mining for other metals such as copper or zinc.   The Lucky Friday mine has been recognized for environmental leadership.  Hecla has built water treatment facilities to retrieve zinc and lead from waste water.  The company is using recycled water for as much as 95% of the water needed for its concentrator equipment.  The company has indicated the Lucky Friday mine will continue to product lead, copper and silver for at least another twenty years.

The Lucky Friday mine might be the exception rather than the rule.  The U.S. Environmental Protection Agency estimates that mining operations in the Western U.S. dumped more than two million pounds of toxic waste into waterways per year.  Of course, this includes more than just silver mining operations. 

Investors with a concern for the environment may prefer to put their capital into more benign opportunities.  In the least due diligence must include a thorough review of each company’s efforts to comply with environmental standards even if those standards are nominal.  Any management group that ducks environmental responsibility should be passed over as undeserving of capital, even investments made in the secondary market.  The costs of environmental degradation are eventually paid by third-parties, including shareholders of health care companies and owners of downstream properties.  It makes no sense to enable pollution with one portion of a portfolio and bear the costs in another part of the portfolio.

 

The next post features a review of environmental standards for silver mining and clean up programs to deal with the contamination from historic mining activities. 

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.