Exploration news (August 01, 2006)

Gold discoveries falling behind

A new in-depth study released by the Metals Economic Group of Halifax, N.S., concludes that the present decline in gold reserves discovered through exploration may result in gold supply shortages in the future.

According to Strategies for gold reserves replacement: The costs of finding and acquiring gold, the world’s 20 largest producers have used a combination of acquisition and exploration to replace 200% of their total gold production over the past 11 years at an average cost of US$38/oz. From 1995 to 2004, these producers also increased their combined annual gold production almost 70%, from 25 to 43 million oz annually, and maintained a remaining production life of 14 years in reserves at 2005 production rates. That’s the good news.

While the top producers have succeeded in adding to their reserves, declining gold replacement via exploration since 1997 (coincident with a drop in exploration spending) may result in supply shortages down the road. Especially evident is that recently discovered large gold deposits (more than 2.5 million oz, the size that majors would consider developing) are not adequate to replace the majors’ gold production.

The accompanying graph shows that, while the gold exploration spending by both major and junior companies has been rising since 2001, so has the amount of gold mined each year, and the discovery of new reserves is not keeping up. The shortage of large projects is likely to remain a critical issue for the largest gold producers.

The MEG study addresses key issues for growth strategies for the gold mining industry through compiling information on the supply side of gold. To obtain the report in print or online, visit www.metalseconomics.com.