from Hang The Bankers:
Nick Holland, CEO of South African based gold miner Gold Fields, stunned the audience with his speech at the Australasian Institute of Mining and Metallurgy conference in Brisbane on Monday.
Holland stated that the gold mining industry is not spending enough to sustain itself into the future, with slowed primary gold supply growth hinting that we may be hitting a peak in production along with reduced exploration spend and a virtual halt in new projects.
Holland had studied the mine life of 11 leading gold companies to find that it has been on the decline, dropping from 24 to 17 years.
A research agency report also found that 52% of production mined in 2015 was at above reserve grades, which indicates a deliberate bypassing of lower grade gold ore.
If and when the lower grade ore is mined we will see costs increased as was the case in the early 2000s.
Whilst companies can get away with this when gold prices are high, should a reversal in the commodity be seen they could be caught with their pants down so to speak.
Yet if Holland is correct with his assessments and a shortage of physical gold was to develop we would likely see prices skyrocket in a rather short timeframe.
With an increased gold price, previously unfeasible projects could become justified with the new valuation of the resource, however the transformation process of taking a deposit through to production can take many years.
In fact, the time it takes to find a deposit and bring it to production is increasing:
This is mainly due to all the known mined, easy to find and close to surface deposits, and new discoveries becoming harder to come by.
This can be seen in the chart below:
Holland believes that the industry needs to embrace innovation and newer technologies to deal with grades likely to be lower than those presently mined.
Unless major gold discoveries are made over the next few years the industry may find itself playing catch-up to demand.
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