The Mining Journal invited me to submit a short article on gold exploration for inclusion in their a Special Supplement on Gold. This is an update of a similar article I wrote for the 2013 MJ Gold Supplement.
Key observations in the current article are:
- Global exploration spend for gold in 2014 is estimated to be US$6.1 billion, down 10% from that reported for 2013 and 32% down from the all-time high of US$10.3 billion in 2012
- The future level of exploration spend is highly dependent on gold price and the junior sector's ability to raise finance. Assuming a long run price of US$1300/oz, I estimate that spending will rebound back to $7.7 billion in 2016 and rise to $7.9 billion by the end of the decade.
- Over the last decade, I have identified 308 primary gold discoveries (>0.1 Moz) containing a total of 855 Moz. Given the delays in reporting, the true figure may end up being 30-50% higher than this. If so, unlike other industry commentators, I believe that the industry is not in terminal decline. Also, most of the junior explorers will survive the current funding crisis and live another day - though their shareholders may carry deep scars.
- Due to high input costs and a mediocre recent discovery record, unit discovery costs are estimated to be around US$87/oz 2013. The weighted average cost of discovery over the last decade (2004-2013) was US$42/oz. This varied from $27/oz in Canada to >$200/oz in Pacific/SE Asia.
- In terms of Tier 1 & 2 discoveries (which are the valuable ones), Canada and both did well - finding 11 and 7 deposits respectively out of a total of 39 globally.
- The article has an interesting chart that shows the time delay between discovery and development. It shows a wide distribution – which reflect the project economics (good ones go into production quicker). Since the 1990s the delay has been getting longer and longer – which is of major concern A quarter of all discoveries in the 1975-94 got into production within 5 years, for those found between 1995-2004 the delay grew to 10 years; and for discoveries made in the last decade it looks like the develop rate is twice as slow again. Of equal concern is the percentage of discoveries that ultimately go into production – this too has been falling over time.
- After adjusted for processing losses and project economics and environmental issues (which inhibit projects from being developed), the industry has been struggling since the late 1990s to find enough quality deposits to replace what it mines. We are definitely at a balancing point, and to meet any future growth in demand the industry will need to be more efficient & effect at exploration, or the price of gold has to rise above $1300/oz to stimulate addition exploration and mine development.