The paper and presentation talk about major trends in expenditures and discoveries for gold in the world since 1950. It attempts to answer the question - is the industry making enough discoveries to meet the future needs for new mines? The paper also quantifies the rate of growth in resources over time – in other words the "blue-sky" potential of a new discovery.
Key observations are:
- Exploration expenditures are cyclical. The industry is currently spending ~$5-6 billion up from $2.8b pa over the last decade
- The industry only finds four to five Tier 1&2 deposits each year ... and of these at best only one is "World Class"
- The current hot spots for exploration success are Columbia/Ecuador, Yukon/Alaska, Northern Ontario, West Africa, East Africa and China
- Unit Discovery Costs have nearly doubled in the last 2 decades to over US$25/oz – made up of Greenfield at $31/oz and $17/oz for Brownfield exploration. Current costs are running at $30-40/oz. Individual countries will be better/worse than average.
- At current high levels of exploration spending the industry is expected to find (on average) around 177 Moz pa of gold, While this rate is higher than current mine production it should be noted that ...
- Not all discoveries turn into mines. Historically, only 60-70% of all gold discoveries are ultimately developed as mines. The likelihood of success depends on the project's size, quality and location
- Not all of the contained metal is recovered. Mining and processing losses typically run at 5-10%
- Not all of the resources are economic to mine
- Even if the project is successfully developed as a mine, there is a lag of 5-15 (average 10) years between discovery and development
- This last factor means that by the time the discovery is ready to be developed as a mine, total demand will be bigger than today
- Consequently, to provide an adequate supply of good quality (economic) projects 10 years out, the industry needs to be finding 2x as much metal as will be mined at the time. Using the average level of spending in the last decade, the likely discovery/mining ratio for gold is estimated to be only 1.0x. Even if exploration spending remains at the (high) levels achieved in 2010 the ratio increases to only 2.0x. This suggests that the gold industry will struggle to supply an adequate pipeline of new discoveries. The implications for long term commodity prices are profound
- A detailed analysis of 60 Major discoveries found that deposits do grow over time. On average, two years after discovery, the resource will be 50% of that at Year 15. This figure rises to 65% by year 5 and 85% by year 10. This is effectively the "blue-sky" exploration potential of a new deposit
- Independent of the above, companies always have the option to increase the resource through lowering the cut off grade. As a rule of thumb, lowering the cut-off grade by 50%, increases the ore tonnes by 4-8x and the contained metal by 2-4x.