Gold miners not finding new deposits to meet future needs - study
TORONTO (miningweekly.com) – Although the
world's biggest gold producers managed to
replace almost twice the reserves they lost due
to production between 1999 and 2008, the rate at
which the industry as a whole is discovering new
deposits will not be sufficient to meet its
needs over the long term, Canada's Metals
Economics Group (MEG) said on Tuesday.
The Halifax, Nova Scotia-based research company
has published a study titled 'Strategies for
Gold Reserves Replacement', in which it
calculates that the average cost of replacing
reserves – for companies that produced 450 000
oz of gold or more in 2008 – was $83/oz during
the ten-year period, taking into account both
acquisitions and exploration spending.
Simultaneously, this group also increased its
aggregate production by a total of 10,7-million
ounces a year of gold, and together accounted
for about 55% of 2008 world gold production.
However, the group’s average annual cost of
producing and replacing gold – incorporating
operating costs, capital costs of new mines,
sustaining capital costs at existing operations,
and reserves replacement costs – more than
doubled over the past decade.
“Although some increased costs were voluntary
(mining lower-grade ores and accelerating
capital investments for new mines in response to
rising prices, for example) and there are signs
that costs are beginning to decline, only a
tripling of gold prices from the lows of the
early 2000s to an average of $872/oz in 2008 has
prevented a financial meltdown like that seen in
the base-metals sector,” MEG said.
Companies searching for new gold resources are
also encountering increased risks from political
and regulatory instability in many developing
nations.
“These countries tend to have inferior
infrastructure, less political stability, and
uncertain security of tenure – all leading to
slower mine development at higher costs,” MEG
said.
In the current industry-wide gold pipeline, 19%
is in lower-risk jurisdictions, 57% in
medium-risk areas, and 24% in high-risk
jurisdictions, according to the study.
Globally, 62 significant discoveries, each
containing at least two-million ounces in gold
resources and reserves, have been reported so
far in the period between 1997 and 2007 .
These discoveries contain a potential
377-million ounces of gold in anticipated
recoverable reserves – less than one-half of the
estimated world gold mine production during the
same period.
“Even anticipating additional reserves from
these and smaller discoveries, the industry’s
new discovery rate still falls well short of
what is needed over the long term.”
In fact, the major producers developed more than
90% of their exploration-derived reserves by
upgrading resources at previously acquired
projects and mines or at older discoveries,
rather than from recent discoveries.
With gold majors getting bigger and bigger, they
are under increasing pressure to add enough
reserves to maintain a production rate that
satisfies the long-term views of investors and
analysts, MEG commented.
And this challenge is further exacerbated by the
majors’ larger-size requirements for new
projects. Based on 2008 production, the
major producers need to replace an average of
almost two-million ounces a year of reserves,
ranging from a high of almost eight-million
ounces annually for industry leader Barrick
Gold, to about 500 000 oz for companies at the
bottom of the list.
“Although, as a group, the major producers successfully replaced almost twice their total production over the past ten years, almost all of these reserves additions were achieved through acquisitions or by upgrading resources at existing projects and mines, and not through finding new significant discoveries,” MEG noted.
At Barrick's annual shareholders' meeting in April, new CEO Aaron Regent said that global gold production from mines will continue to decline, as the gold industry battles maturing mines, a scarcity of new discoveries and longer permitting and construction times for new projects
Global gold mine production contracted almost 3% last year, to its lowest level in 12 years, according to consultancy GFMS.
