Peak Gold And The Coming Supply Crunch
The comments below are an edited and abridged synopsis of an article by Stefan Gleason
Gold production peaked in 2018, according to some top industry insiders. This doesn’t mean gold production will fall, but it does mean miners lack the capacity to ramp up production in order to meet rising global demand, and even higher prices would not make it happen.
One proponent of the peak gold thesis is Ian Telfer, chairman of Goldcorp. We’ll soon find out whether his call for gold production to fall in 2019 pans out. If it does, the implications for investors are enormous.
Developing new mines is expensive, time consuming, and risky. It’s difficult to identify viable new projects that would add significantly to an asset base. As new discoveries shrink, many have decided it makes more sense to buy up the assets of smaller competitors while they are on sale.
It may prove beneficial to corporate bottom lines, but M&A activity doesn’t necessarily translate into more ounces being pulled out of the ground. To the contrary, it’s a sign that mining companies aren’t keen on investing in the exploration and development of new mines.
After years of high grading (processing the easier to get, higher quality deposits first), future gold extraction costs could get progressively steeper for existing major mines.
Even at $1,300 an ounce, gold prices aren’t high enough to generate attractive returns on investment. Many gold mining companies are barely breaking even after their all-in costs are considered.
Mid-tier producer Iamgold announced recently that it will halt construction at one of its gold projects. It will wait for improved, and sustainable, market conditions in order to proceed with construction.
That’s just one example among many of why gold production could begin to taper off in 2019.