Prior to the coronavirus outbreak, peak gold supply was becoming a real possibility. Now, with exploration programs halted or cancelled and project disruptions hampering production, the summit is in sight, according to research firm Wood Mackenzie’s latest report.
As organic growth is waning, miners are looking to buy gold through mergers and acquisitions to secure their future. So far this has failed to significantly increase production. To avoid a perpetual decline in gold supply, the industry must see a rise in project development, the firm says.
Wood Mackenzie estimates the industry will need to commission 8Moz (262t) of projects by 2025 to maintain 2019 production levels.
This equates to roughly 44 projects. Based on the average project capital intensity of $4,610/ozpa Au, Wood Mackenzie estimates the industry must invest approximately $37 billion on greenfield projects and restarts over the next 5 years.
“If all our probable projects were to come online before 2025, this would almost meet the requirement to maintain 2019 production levels,” said Rory Townsend, Wood Mackenzie’s head of Gold Research.
“The likelihood, however, is that we see some degree of slippage among a number of these assets due to permitting delays, prioritisation of other capital projects and changes in scope,” said Townsend.
“Social and governance considerations are dissuading the exploration of certain jurisdictions and the progression of identified deposits.
“Investment and exploration in countries such as South Africa has all but dried up, with the gold mining industry plagued by power outages, labour strikes and regulatory uncertainty. This has prompted investors and miners to consider countries they deem to be more mining-friendly,” Townsend said.
“Ghana has been a significant beneficiary of this and overtook South Africa to become the largest gold producer in Africa in 2018,” added Townsend.
Wood Mackenzie has identified around 260 projects that gold miners and investors could turn to.
“Given the size of the resource that is available to be developed, talk of peak gold supply may seem a little surprising. Crucially, however, it is not the lack of gold that is the constraint. Gold miners and investors are carefully searching for the deposit that is “just right” in order to allocate capital,” said Townsend.
Download our REPORT on the Company we believe is the best way to get positioned for the next leg up in this early-stage bull market in gold stocks. STOCK TICKER INSTANT ACCESS