|Martin Creamer reports that gold is being discovered at a fraction of the rate needed to replenish reserves. In the last 16 years, the gold mining industry has failed to replace more than half the ounces mined. Collective mine life has fallen with the inclusion of lower gold grades in gold reserve calculations. The number of ounces being replaced by exploration has nosedived and supply is heading for a sharp fall.|
Although exploration budgets peaked at $6 billion in 2011, exploration success has been dismal. As a result, the industry bellwether stocks are now forecasting substantial declines in gold production. Bristow drew attention to the last eight months of gold industry activity being exceedingly contrasting.
With the gold price at $1 050 per oz and companies debt laden, capital expenditure (capex), exploration budgets and even stay-in-business capital was cut and mines were sold. Fast forward to the middle of this year and the scenario changed materially. The gold price jumped $300 per oz in eight months and the share prices of gold mining companies soared. But even with the gold price looking set for another long period of strong performance, many see the industry doing little to improve a reserve grade that is well below what it was in 2000.
Only the discovery of new quality ounces will improve the situation. Without that, mine life will be still further reduced, Bristow emphasized. Just to keep the industry supplied, he estimates that it will require the discovery of 90-million new ounces a year, and to reverse the grade deterioration 180-million ounces a year will need to be discovered. However, current discovery levels are at a fraction of what is required, in the range of 10-million ounces to 15-million ounces a year.
The current outlook suggests that gold supply will fall by a third in less than ten years and the big debate is around whether peak gold will arrive next year or in 2019 given that most of the industry has not moved much.