In Gold’s Shadow

September 19, 2013, 11:53 AM UTC

Sometimes it’s all about the company you keep. For a silver-mining firm, that means rolling with the rise and fall of the price of gold. The global financial turmoil that drove gold higher in the years after the financial collapse pushed silver up too, and led to record profits for Pan American Silver in 2011. That year silver averaged $35.12 an ounce, a 139% increase over the 2009 price. In 2012, Pan American (PAAS) set a production record with 25.1 million ounces of silver, up 14.6% for the year and more than double the 12.5 million ounces the company produced in 2005. But the price of silver has slipped nearly 40% the past two years, and last quarter the company announced a $185.2 million write-down, primarily on goodwill associated with the Dolores silver mine in Mexico, which Pan American acquired in 2012.

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Silver is a stand-in currency for investors, but it also has a variety of industrial uses as a heat conductor and in electrical switches. In 2012, 465.9 million ounces of silver were used in industrial applications, 44% of the total global demand (compared with 185.6 million ounces used for jewelry that same year). Global industrial demand for silver is off from a record of 500.7 million ounces in 2010 but remains above 2005 levels, largely because of its use in electronics manufacturing. Still, the industrial demand for silver is not enough to break from its golden cousin. “At the end of the day your silver price more or less will be pegged to what happens in the gold space,” says David West, an analyst at Salman Partners. The biggest question for Pan American: Where’s gold going?

This story is from the October 07, 2013 issue of Fortune.