Only a tiny handful of huge gold discoveries have been made worldwide in the last decade, which experts say is because virtually all the juiciest low-hanging fruit has been picked some time ago. And this new reality promises to help edge bullion prices increasingly higher.
The scarcity of world-class gold discoveries is already taking a toll on the mining industry’s bottom line. Global gold output has been dwindling by nearly 5% per annum since it peaked in 2001, even though bullion’s spot price has more than tripled since then.
An even more pronounced downward trend can be seen in North America. This is where output has dropped over the last decade from 17.06 million ounces in 1998 to 10.59 million ounces in 2008.
Part of the problem is that historically gold-rich territories like eastern Canada’s Abitibi Greenstone Belt and Nevada’s fabled Carlin Trend have failed to yield any monster gold finds in recent years, according to Mickey Fulp, a geologist and exploration/mining analyst who has over 30 years of mineral exploration experience all over the world.
Fulp runs the mining investment newsletter www.mercenarygeologist.com. “Geologists are running out of virgin geological terrain that is prospective for the discovery of giant outcropping ore bodies,” he says. “Much of the earth has already been trod many times by exploration geologists.”
Fulp adds that the gold exploration sector is now being forced to venture into some of the world’s last geological frontiers – often emerging democracies that are typically fraught with geopolitical risk. They include Mongolia where one of the rare world-class gold discoveries of the last decade has struggled to make headway due to the procrastination of the Mongolian government. (Jointed owned by Rio Tinto and Ivanhoe Mines (TSX: T.IVN, Stock Forum), the Oyu Tolgoi gold/copper deposit finally got the green light to proceed to the mine development stage earlier this month after at least six years of political wrangling).
Yet, the high stakes lure of huge gold finds in far-flung exotic lands has always held a potent appeal for investors who love to gamble. Hence, the mining industry’s junior ranks (explorers and developers, rather than mine builders) tapped into Canada’s venture capital markets for a princely Cdn. $37 billion during the metals bull market of 2003-2008. This is according to another newsletter writer and mining analyst, John Kaiser, the editor of www.kaiserbottomfish.com
In spite of this flood of speculative money, Kaiser points out that only one epic new gold discovery has been made during the last six or seven years. Found in 2006 by a tiny Canadian mineral explorer called Aurelian Resources (and since acquired by Kinross Gold (TSX: T.K, Stock Forum), the rich Fruta del Norte deposit in Ecuador now hosts an estimated 13.7 million ounces of high-grade gold and 22.4 million ounces of silver.(Notably, this mine may not come on-stream within the next several years due to political meddling by the left-wing Ecuadorian government).
Kaiser doesn’t think that nearly all of the world’s epic gold discoveries have already been made. But he does concede that they have become increasingly elusive, especially with the advent of strict environmental laws in most global mineral hunting grounds, which could keep any number of world-class gold prospects off-limits.
“Unlike other metals like copper, molybdenum and rare earths etc., we don’t really need gold for anything…. So what if gold deposit doesn’t go into production? It doesn’t change the welfare of the world at all. So I think environmentalists will still (successfully) target gold projects,” he forecasts.
Another impediment to ramping up the world’s below-ground gold supplies is the fact that there are normally long developmental timelines involved in building large new mines. Moreover, capital costs related to building and operating mines have gone up exponentially in recent years, Kaiser adds.
Additionally, with gold prices repeatedly hitting all-time highs over the past couple of years, most investors want to see mining juniors “proving up ounces in the ground” sooner rather than later, Kaiser says. That is why the junior mining sector has mostly focused on upgrading established deposits during the last few years, rather than taking the much longer route of methodically advancing grass roots discoveries.
Many promising gold deposits that have sat on the sidelines since as far back as the mid 1990s due to deflated gold prices now have a new lease on life, he says. So the race is now on to commercialize the best of them, a tiny handful of which could one day be huge money makers.
However, not all of the world’s headline-grabbing gold finds are old news stories in search of a happy outcome. There have been a handful of major success stories in the making during the past several years. The most recent of which involved the Vancouver-based mining junior, Exeter Resource Corporation (TSX: V.XRC, Stock Forum; AMEX: XRA, Stock Forum), which is developing its world-class Caspiche gold/copper porphyry deposit in mining-friendly Chile.
The company caused quite a stir in the investment community in September by announcing an updated resource estimate of 19.8 million ounces of gold, 137 million ounces of silver and 4.8 billion pounds of copper. On an equivalent ounce basis – using a US $800 gold price, a US $12 silver price and a US $2.00 per pound copper price – this translates into no less than 33.7 million ounces of gold.
Wendell Zerb, a mining analyst for the Vancouver brokerage firm Canaccord Adams has been following Exeter’s fortunes. And he believes the company’s Caspiche deposit has “the earmark of being a very significant discovery.”
And though such elephant-sized deposits are not yet an endangered species, they are becoming increasingly elusive, he adds. “As for making new (world-class) discoveries very close to the surface, the real obvious assets have already been discovered. So it does take more effort and expenditures than it used to.”
Zerb suggests that it would be premature for Exeter to consider its discovery to be one of the most remarkable mining success stories of this decade. But the signs to date are encouraging, especially with the deposit beginning to measure up favorably compared to the nearby, geologically comparable Cerro Casale gold-copper deposit.
Jointly owned by the mining heavyweights Barrick Gold (TSX: T.ABX, Stock Forum; NYSE: ABX, Stock Forum) and Kinross Gold, Cerro Casale is a huge prospective mine-in-the-making that boasts a 23-million-ounce gold resource, along with six billion pounds of copper.
Meanwhile, some other industry commentators point to the fact that major gold mining companies are continually struggling to replace mined-out reserves. Especially their high-grade ore, much of which was severely depleted when gold was fetching much lower prices.
Consider the fact that the world’s top trio of producers (Barrick Gold, Anglogold Ashanti and Newmont Mining), alone, each generate between 5 to 8 million ounces of gold per annum. That means that at least one new multi-million ounce deposit needs to come on-stream every year just to replace this output. This isn’t happening.
Moreover, the advent of $1,000-plus gold prices still won’t speed up three to seven year mine developmental timelines – ones that invariably involve time-consuming regulatory hurdles. Such a scenario will no doubt help to underpin high-flying gold prices for the foreseeable future. And that’s good news for companies like Exeter Resource, which will see their much-envied monster gold assets become even more valuable.