Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Four years of falling gold prices, reduced capital expenditures and declining output from existing mines has a silver lining, no pun intended.
According to GFMS and the CEOs of some major gold companies, supply of the precious metal has peaked, offering a ray of hope for gold bulls.
Research by Thomson Reuters’ GFMS, quoted Sunday in the Financial Times, states that global production of gold is likely to decline by 3 percent this year, putting an end to seven years of rising output. 2015 was a record year for gold supply, at 3,155 tonnes, according to GFMS. Lower mined gold supply could put upward pressure on prices. 2016 has already seen a 2.6 percent spike in the price of gold, driven by safe haven demand after a dreadful start to the year for equities following a stock market meltdown in China, along with rising tensions between Saudi Arabia and Iran and the suspected detonation of a hydrogen bomb in North Korea.
Gold has plummeted over 40 percent from its 2011 highs, and last year saw a 10.42 percent price drop in the United States, its third annual loss. Here is how the CEOs of three major gold miners see the falling supply, as told by the FT:
Vitaly Nesis, CEO of Polymetal (LSE:POLY): “It is fruitless to try to predict demand dynamics for gold — I always put my faith in a recovery driven by reduction in supply and I believe we will see the first signs of impending recovery in the second half of this year. The fourth quarter last year was in my opinion the peak quarter for fresh global mine supply. … I think supply will drop by 15 to 20 per cent over the next three to four years.”
Kevin Dushnisky, president of Barrick Gold (NYSE, TSX:ABX): “Falling grades and production levels, a lack of new discoveries, and extended project development timelines are bullish for the medium and long-term gold price outlook.”
Nick Holland, chief executive of Gold Fields (NYSE:GFI): “We were all talking about how production was going to increase every year. I think those days are probably gone … you are not going to see massive production increases in the industry.”
According to the World Gold Council, China is the leading gold producer, accounting for around 15 percent of world production. Central and South America supply about 17 percent of the total, with North America accounting for 15 percent. Africa produces about 20 percent of the world’s gold and 14 percent comes from the CIS region of the former Soviet Union. About a third of the total supply of gold is recycled.
5 Comments
rayban
True enough , a high price for Gold shall cause more production . A point as well , history never perfectly repeats so waiting for capitulation and buying along the way .
UkraineTiger
These people have no idea. They make it up as they go along trying to appear insightful. Fact is, there will be another large deposit ‘discovered” some time this year and everything you just read will become irrelevant. Then these bozzos will receive multimillion dollar redundancy cheques.
James Bond
The real problem that I can see is most of the gold majors have fired most of their projects people and backed off on a lot of the exploration budgets as well. It takes a long time to build a project so the supply side is not going to get better any time soon.
Backseat Driver
There are plenty of projects just waiting for price movement. Peak gold? WTF? We will just dig deeper, mine narrower and recover more from tailings. Like fracking without the environmental impact.
ExPat
All of that, plus if gold prices do rise significantly, payoffs (environmental remediation and mitigation projects, bribes to government officials, etc.) will be made to get production started on large proven reserves like Pascua Lama.