It is difficult to overstate the importance of gold. It has been prized as decoration as long as humankind has been around. It makes a solid foundation for world banking. It has been fought over. It is the stuff of which legends are made. And gold is undeniably beautiful.
Most of the general public and the mineral industry snap to attention when gold is in the news. Reports of new gold finds are especially welcome. But they may be fewer and farther apart if the findings of Halifax's Metals Economics Group (MEG) are accurate. (www.MetalsEconomics.com)
MEG examined the costs of finding and acquiring gold reserves and found that overall the industry is not discovering new deposits fast enough to meet future production demand
The report looked closely at major gold producers, those with an output of 450,000 oz or more in 2008. They overcame "… rising costs, equipment and labour shortages, electrical outages, wars, permitting hurdles, typhoons, political opposition, and other obstacles," the report noted to replace reserves at twice the rate they are mining them. Most of these gains were made through acquisitions or upgrading existing resources due to the high gold price, not through grassroots discoveries.
Although all gold miners face the same rising risks, those risks are particularly difficult for junior companies to overcome. Exploration costs are continuously rising. Working in a developing nation brings with it increased political and regulatory uncertainty. Going to remote areas to find new deposits means there is no infrastructure to support a project. Taken together, these conditions slow development and push up the cost.
Yet it is still the junior sector that is responsible for most new discoveries. Investors comfortable with higher risks continue to supply funding for this vital undertaking. Now there is a new tool to help them make their choices, the McEwen Junior Gold Index.
This is the brainchild of Rob McEwen, the founder of Goldcorp and current head of U.S. Gold and Minera Andes. His success with Goldcorp has made him an industry icon.
The companies represented by the index are chosen by committee. They must have a minimum market capitalization of US$50 million; a minimum daily trading liquidity of US$50,000; listed on the TSX, TXV-V, NYSE, NYSE.A or NASDAQ; and be focused primarily on exploration. They are reviewed monthly. The index is market-value weighted.
Readers might like to go to www.McEwenCapital.com to see how their favourite gold junior stacks up against the index.
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