Gold Miners Are Running Out of Metal: Five Charts Explaining WhyBy
Exploration proving more difficult and firms have cut capex
Gold mining CEOs turning to deals to combat dwindling reserves
Gold’s had a roller-coaster year, surging as much as 30 percent before giving up the bulk of those gains. But one trend has been consistent: mining companies are finding it harder to dig up more of the precious metal.
The following charts show why, and what that means for the industry.
Even though producers’ exploration budgets surged more than 10-fold to $6 billion a year in the decade to 2012, new finds are in decline. The amount of gold discovered last year was down 85 percent compared with 2006.
To cope with bullion’s 41 percent price plunge from a record in 2011, miners have cut capital expenditure. That’s shortened the lifespans of many mines as firms haven’t been able to build the infrastructure needed to access more ore.
Because of fewer discoveries, reduced mine life and a lower gold price, the amount of known metal that’s economically worth mining is falling. Major producers’ reserves have slipped 40 percent since 2011.
Supply Crunch Coming
Annual production might be near a record, but it’s not expected to last for long. Mine supply will peak in 2019 and keep falling through at least 2025, according to BMO Capital Markets. Randgold Resources Ltd. Chief Executive Officer Mark Bristow is among those expecting so-called peak gold in the next few years.
But there’s a caveat: Annual mine output totals less than 2% of all the gold that’s thought to have ever been produced and unlike commodities such as oil or copper, most of that gold is sitting in vaults or in jewelry form. That makes it easier for old metal to come back into the market if supply tightens.
The Race for Reserves: M&A
With their industry facing a tougher production future, gold mining CEOs have been on the hunt to buy up competitors to replace dwindling reserves. Deals for bullion producers have topped those for other commodities so far this year.