Largest Gold Producers Replace Reserves
HALIFAX, NOVA SCOTIA - Metals Economics Group’s (MEG) recent Strategies for Gold Reserves Replacement study concludes that between 1999 and 2008 the world’s largest gold producers (those with production of 450,000 oz or more in 2008) overcame rising costs, equipment and labor shortages, electrical outages, wars, permitting hurdles, typhoons, political opposition, and other obstacles to replace almost twice their reserves lost through production. The group’s average cost of replacing reserves through a combination of acquisitions and exploration was $83/oz. At the same time, this group also increased its aggregate production
by a total of 10.7 million oz/y of gold, and together accounted for about 55% of 2008 world gold production.
The group’s average annual cost of producing and replacing gold incorporating operating costs, capital costs of new mines, sustaining capital costs at existing operations, and reserves replacement costs more than doubled over the past decade. Although some increased costs were voluntary (mining lower-grade ores and accelerating capital investments for new mines in response to rising prices, for example) and there are signs that costs are beginning to decline, only a tripling of gold prices from the lows of the early 2000s to an average
of $872/oz in 2008 has prevented a financial meltdown like that seen in the base metals sector.
In addition to higher costs, exploration programs are encountering increased risks from political and regulatory instability in many developing nations. These countries tend to have inferior infrastructure, less political stability,
and uncertain security of tenure all leading to slower mine development at higher costs. In the current industry wide gold pipeline (1.7 billion oz of gold in reserves and resources in the 228 advanced-stage non-producing projects analyzed) 19% is in lower-risk jurisdictions, 57% in medium-risk areas, and 24% in high-risk jurisdictions.
Globally, 62 significant discoveries (each containing at least 2 million oz of gold in total reserves and resources) have been reported so far in the 1997-2007 period1. These discoveries contain a potential 377 million oz of gold in anticipated recoverable reserves less than half of the estimated world gold mine production during the same period. Even anticipating additional reserves from these and smaller discoveries, the industry’s new discovery rate still falls well short of what is needed over the long term. As a group, the major producers developed more than 90% of their exploration-derived reserves by upgrading resources at previously acquired projects and mines or at older discoveries, rather than from recent discoveries.
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