Gold exploration: Gloom or boom?

Article for a special supplement on the Gold industry, published by the Mining Journal September 2013

In a recent keynote address to the Geological Society of South Africa GeoForum 2013 Conference in Johannesburg, I gave a detailed assessment on the Long-term Outlook for the Global Exploration industry – Gloom or Boom? At the request of the Mining Journal, I have recast the assessment to focus in on the likely outlook for gold exploration.

In detail:

  • Over the last decade total expenditure on gold exploration rose (in constant 2012 US dollars) from US$1.2 billion to a peak of US$10.0 billion in 2012, and accounts for 34% of total spend on all mineral commodities.
  • It is estimated that the total number of – mainly junior – companies actively exploring for minerals has more than doubled over the last decade from 1500 to over 3500 at present.
  • There is a strong correlation between the gold price and exploration spend. Using this I developed a model to forecast the likely level of gold exploration by region.
  • Based on current pessimistic gold price forecasts, I estimate that the amount spent on gold exploration could drop by 25% to US$7.6 billion in 2013, before falling further to US$4.6 billion in constant 2012 dollars by 2020.
  • With regard to the recent trends in exploration success, MinEx has data on 234 primary gold discoveries (containing more than 0.1Moz each) made over the last decade, amounting to a total resource of 687 Moz.
  • MinEx identified 58 base metal and other discoveries over the period 2003-12 that contain a total of 150Moz of by-product gold.
  • Of particular importance to the long-term viability of the industry is the disturbing fact that it is becoming progressively more expensive to make discoveries.
  • Even after adjusting for the number of unreported discoveries & resource growth, a large gap has opened up in the last five years between the amount of money spent and the estimated number of discoveries made by industry.
  • It now costs twice as much to make a discovery as before. In other words, exploration productivity has halved.
  • In MinEx’s opinion, the likely culprit is the dramatic and sustained increase in input costs – such as drilling, labour, land access and administration – all of which have doubled in real terms over the past decade.
  • The challenge, as always, is being efficient and effective in the way companies do their exploration. Some things never change.

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