Hi Bob,...you and I aren't the only ones who think there is still lots of mineable gold to replace current reserves out there for years to come,...there is at least three of us (gggggggggggggg)
http://www.mips1.net/mggold.nsf/Current/4225685F0043D1B248256C21004357E6?OpenDocument
Posted: 2002/08/26 Mon 20:15 ZE8 | © Miningweb 1997-2002
PERTH – One of the widely-held beliefs of gold bulls is that a major decline in mine production this decade will eventually result in higher gold prices. But, according to a leading global gold analyst, the evidence may not support this view.
The popular gold bulls theory was predicated on a sound enough assertion. Depressed gold prices of the late 1990s/early 2000s led to a significant drop-off in gold exploration expenditure, and therefore new discoveries (future projects) were not being generated and mine output should deteriorate over the next 5-10 years.
However, gold and indeed other metals have shown a certain resilience in terms of output. "In truth, history reveals that a large proportion of 'probable' projects and a modest proportion of 'possible' projects tend to come into production over such a time series and even more so over a decade," said associate director of metals and mining at Macquarie Bank, Kamal Naqvi.
According to a recently completed 18-month study conducted by Toronto-based Beacon Group Advisors, gold production was forecast to ease by about 30 per cent by 2010 from current output levels. The study – which was sponsored by some of the world's major gold producers and analysed over 270 gold properties (with more than 200 operating mines accounting for two-thirds of the world's annual gold production) – suggested output would commence its long awaited descent this year, and continue slowly along the downward path until 2005, at a rate of about 2 per cent a year.
Then in the ensuing five years, it was anticipated to drop away sharply to around 70 per cent of the level seen in 2001, with North America leading the downward spiral. Beacon applied the approximate average gold price of the past three calendar years of US$275/oz to its modelling.
"One argument commonly posited in favour of higher gold prices is that global production will soon decline, in response to years of low gold prices and slashed exploration spending," Beacon said. "This, coupled with positive demand and reduced hedging, will tighten supply of the metal, thereby putting upward pressure on the gold price."
But while substantial, the fall was slower than many other projections, the research group said. The main reasons given were that gold mines were better at replenishing reserves and extending mine lives beyond existing proved reserves than most market observers gave them credit for and that there was greater potential for expansions and new projects to be developed than generally accepted.
A qualifier Beacon noted was the potential impact of the large unexploited inventory left-over from the 1990s, awaiting a recovery in the gold price. "Global gold production would stop declining in the US$325-$350/oz (price) range after 2004," the group said.
Naqvi also felt most long-term projections of mine output for metals tended to inflate reductions. "As these years draw nearer then actual production tends to be considerable larger," he said. "This is a function of the long lead times involved in committing to mine projects, as well as the difficulty in accurately (predicting) brownfield expansions."
The London-based Aussie analyst said the next five years would provide a more probable outcome (than 10-year forecasts) and hence might be more relevant for any potential investor. Naqvi cited data from industry consultants Brook Hunt, who estimated gold production would fall by a gentle 87t or 4.5 per cent to 1,823t by 2006 based on existing operations and committed and probable projects compared with its base-case scenario of 224t or 11.7 per cent (down to 1,619t) using only existing mines and committed projects. If all identified projects came on stream, Brook Hunt predicted an actual increase in production out to 2006 of 83t or 4.3 per cent to 2,112t.
Attractive margins would also have an impact on the rate of production decline. "It should be of little surprise that we still see a large array of 'potential' gold mine projects given 'relatively' low costs of production compared to current spot gold prices," Naqvi said. "It (Brook Hunt) forecasts that this modest reduction in gold mine production will be associated with an increase in total costs of an even more modest 2.5 per cent or US$6 from US$240/oz in 2002 to US$246/oz by 2009." Current gold prices above US$300/oz consequently equated to an average cash margin of about US$50/oz or 20 per cent, which was "attractive compared with other mine production – let alone the relative strength that gold has due to its forward curve," he said.
Naqvi conceded worldwide gold mine production was approaching stagnation. "Even after including all projects the potential increase to output is only relatively modest," he said. "Further, many of these projects require a higher gold price and/or are located in regions that are considered to be 'high risk', such as much of Africa or the Pacific-Rim.
"We certainly accept that there are real challenges ahead for gold producers in maintaining their current levels of production," he added. "However, those expecting an imminent and massive decline in gold mine production and that this will therefore lead to higher gold prices are likely to be at least as disappointed as base metal investors who assume the same thing."
An interesting point Beacon made on future production and the possible effect on price was the influence of ownership of resources in fewer hands. "It is widely understood global gold production is disseminated among so many mines that even the eight largest companies control less than 38 per cent of production," it said. "However, few recognise that more than 40 per cent of mineable resources (potential future production) are contained within a dozen mines, a dynamic likely to influence the gold sector's future consolidation."
Meanwhile, Australia, the world's third largest gold producing nation, recorded total output of 272.5t in 2001/02, representing a slide of 8 per cent on the previous financial year, according to figures compiled by Melbourne-based mining industry consultants, Surbiton Associates.
Gold production has continued to fall from its peak of 318t in 1997/98, but the Australian dollar price of gold trended upwards in FY 2002. "The average of A$567/oz for the June 2002 quarter is the best it's been for nearly 15 years," Surbiton said.
The top five gold mines in Australia make interesting reading: US-based Newmont Mining Corp and Canada-based Barrick Gold Corp's equally-owned Super Pit was the leading producer for the FY at 673,741oz, Gold Fields of South Africa's St Ives project followed with 574,259oz, Newmont's The Granites operations were third with 495,004oz, the Granny Smith JV between Canada-based Placer Dome (60 per cent stake) and its takeover target AurionGold (40 per cent) was next with 442,404oz, and SA-based AngloGold's Sunrise Dam rounded out the very international-flavoured top five with 340,155oz. |
