Gold’s slim price recovery this year boosts supply fears

Petropavlovsk, a gold miner with assets in Russia, is a case in point. It has cut its exploration budget by two-thirds.

“There is a chronic shortage of exploration money and as usual the gold price is not acting in the way everyone thought it would do,” says Peter Hambro, chairman of the company.

Africa-focused producer Randgold Resources (LON:RRS) echoes those worries. Its chief executive, Mark Bristow, has been warning for months that peak gold production may be reached within the next three years.

Bristow, a South African who made his name by finding and developing some of the continent’s biggest gold mines, believes the main problem is that companies are failing to replace their reserves.

He attributes that trend to drastic cost cutting measures in the last two years and to the fact that miners have been digging out higher-grade material for a short-term gain, which — in turn — can shorten the lifespan of a mine.

Estimations by Newmont Mining (NYSE:NEM), the world’s second largest gold producer by output, reinforce Bristow’s view. Despite being one of the very few firms building brand-new mines, Newmont expects supply of the precious metal to fall about 7% by 2021.

Others, such as Bloomberg experts, predict a worse scenario, with gold mine stockpiles dropping about a third in the nine years to 2025.

Analyst Jonathan Guy, from London-based Numis, went even further. He told FT.com that if gold prices remain close to $1,200 or lower, big projects such as Barrick and NovaGold’s touted Donlin mine in Alaska, will be halted as they “do not make sense” at such low prices.

While the metal briefly spiked after the outcome of Italy’s constitutional referendum on Monday, prices were hovering near last week’s 10-month low in early US trading, with February Comex last down $7.90 an ounce at $1,169.80.