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With the support of twelve sponsors from government, research and industry, I carried out a major study to assess the forty-year outlook for the Australian gold industry. It forecasts the likely number of mines, production, revenues and employment out to 2057 for this vital sector of Australia's economy.
This involved modelling the likely output from existing mines (including an adjustment for mine-life extensions), the number likelihood and timing of new projects (that could be developed into mines) and the likely number and size of new discoveries (and the associated timing and likelihood that they will be developed).
Because of the inherent uncertainties in making a forecast like this, the methodology used a probabilistic approach to model a 1000 different scenarios of the likely future business cycle and associated operating practices. From this, general trends can be identified.
In detail, based on past trends the model assumed that there is a 90% chance that over the next forty years the gold price will lie between $793 and $2258 per ounce, with an average price of $1524 (in constant 2017 A$).
The key results are:
- Over the short-term (i.e. the next 5 years) production is dominated by existing mines. Output from these mines will remain steady for the next two years (with 9.7 Moz produced in 2017) then quickly decline thereafter. In forty years-time only four of the current 71 mines will still be operating – with most closing down over the next two decades. By 2057, the remaining mines will produce less than 0.4 Moz pa of gold.
- In the medium term (i.e. 5-10 years out) an increasing amount of production will be supplied from new mines based on known deposits. However, it won't be enough to offset the decline from existing mines. By 2057, output from new projects will only total 0.3 Moz pa.
- In the long term (i.e. 10-40 years out) exploration success will play a major role in overcoming much of the looming shortfall in gold production. The model forecasts that, over the longer term around $677 million pa will be spent on gold exploration in Australia (slightly up on current levels), resulting in 266 new gold deposits being found over the next forty years. Half of these will be developed, and will contribute 4.06 Moz pa of gold in 2057.
- Adding the above three components together I forecast that, over the next forty years, gold production and revenues are set to drop by half – to 4.69 Moz and A$7.3 billion respectively. The number of operating mines is set to fall by a third (from 71 to 47) and total employment by 70% (from 27,980 to 8.300 workers).
- By 2057 almost all of Australia's future gold production with come from exploration successes.
- It is significant to note that the model predicts that in 15 years-time (i.e. by 2032) half of Australia's gold production will come from mines that are yet to be discovered.
- However, of serious concern is the fact that the weighted average delay between discovery and development for a new discovery is 13 years.
Consequently, government and industry need to support exploration today. We only have the next couple of years to properly identify and address ways to improve our exploration performance - otherwise Australia runs the real risk of a significant supply disruption in the medium-term.
- Sensitivity studies indicate that each additional dollar spent on exploration generates an extra $11.40 in revenue.
- MinEx estimates that for the Australian gold industry to maintain production at current levels in the longer term, it will either need to double the amount spent on exploration or double its discovery performance (i.e. reduce unit discovery costs from $70/oz to $35/oz). The incremental benefits of reaching this target will be an extra 4.05 Moz of annual production, an extra $6.23 billion in revenues and additional 7160 jobs.
The above-mentioned outlook is premised on "business-as-usual". The opportunity exists for industry and government to take the initiative to invent its own future. In addition to developing policies that encourage/stimulate exploration, the opportunity also exists to be more efficient and effective at making discoveries. The challenge is that many of these initiatives require effort (and money) and will take several years to bear fruit.
Given the long lead times involved (both for R&D, discovery and mine development) there is an urgent need to start the process now.
The report will be used by industry and Government to quantify / under-pin the business case for R&D and other support for the exploration & mining industry in Australia.