Johannesburg - 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 shows why, and what that means for the industry.
Dwindling
discoveries
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.
Capex
cuts
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.
Falling
reserves
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 CEO Mark Bristow is among
those expecting so-called peak gold in the next few years.
Read also: Top forecaster says gold may snap back
But there’s a caveat: Annual mine output totals less than 2 percent 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.
BLOOMBERG