Only a tiny handful of huge gold discoveries have
been made worldwide in the last decade, which experts say is because virtually
all the juiciest low-hanging fruit has been picked some time ago. And this new
reality promises to help edge bullion prices increasingly higher.
The scarcity of world-class gold discoveries is
already taking a toll on the mining industry’s bottom line. Global gold output
has been dwindling by nearly 5% per annum since it peaked in 2001, even though
bullion’s spot price has more than tripled since then.
An even more pronounced downward trend can be seen
in North America. This is where output has dropped over the last decade from
17.06 million ounces in 1998 to 10.59 million ounces in 2008.
Part of the problem is that historically gold-rich
territories like eastern Canada’s Abitibi Greenstone Belt and Nevada’s fabled
Carlin Trend have failed to yield any monster gold finds in recent years,
according to Mickey Fulp, a geologist and exploration/mining analyst who has
over 30 years of mineral exploration experience all over the world.
Fulp runs the mining investment newsletter
www.mercenarygeologist.com. “Geologists are running out of virgin geological
terrain that is prospective for the discovery of giant outcropping ore bodies,”
he says. “Much of the earth has already been trod many times by exploration
Fulp adds that the gold exploration sector is now
being forced to venture into some of the world’s last geological frontiers –
often emerging democracies that are typically fraught with geopolitical risk.
They include Mongolia where one of the rare world-class gold discoveries of the
last decade has struggled to make headway due to the procrastination of the
Mongolian government. (Jointed owned by Rio Tinto and Ivanhoe Mines, the Oyu
Tolgoi gold/copper deposit finally got the green light to proceed to the mine
development stage earlier this month after at least six years of political
Yet, the high stakes lure of huge gold finds in
far-flung exotic lands has always held a potent appeal for investors who love to
gamble. Hence, the mining industry’s junior ranks (explorers and developers,
rather than mine builders) tapped into Canada’s venture capital markets for a
princely Cdn. $37 billion during the metals bull market of 2003-2008. This is
according to another newsletter writer and mining analyst, John Kaiser, the
editor of www.kaiserbottomfish.com
In spite of this flood of speculative money, Kaiser
points out that only one epic new gold discovery has been made during the last
6-7 years. Found in 2006 by a tiny Canadian mineral explorer called Aurelian
Resources, the rich Fruta del Norte deposit in Ecuador now hosts an estimated
13.7 million ounces of high-grade gold and 22.4 million ounces of silver.
(Notably, this mine may not come on-stream within the next several years due to
political meddling by the left-wing Ecuadorian government).
Kaiser doesn’t think that nearly all of the world’s
epic gold discoveries have already been made. But he does concede that they have
become increasingly elusive, especially with the advent of strict environmental
laws in most global mineral hunting grounds, which could be any number of
world-class gold prospects off-limits.
“Unlike other metals like copper, molybdenum and
rare earths etc., we don’t really need gold for anything…. So what if gold
deposit doesn’t go into production? It doesn’t change the welfare of the world
at all. So I think environmentalists will still (successfully) target gold
projects,” he adds.
Another impediment to ramping up the world’s
below-ground gold supplies is the fact that there are normally long
developmental timelines involved in building large new mines. Moreover, capital
costs related to building and operating mines have gone up exponentially in
recent years, Kaiser adds.
Additionally, with gold prices repeatedly hitting
all-time highs over the past couple of years, most investors want to see mining
juniors “proving up ounces in the ground” sooner rather than later, Kaiser says.
That is why the junior mining sector has mostly focused on upgrading established
deposits during the last few years, rather than taking the much longer route of
methodically advancing grass roots discoveries.
Many promising gold deposits that have sat on the
sidelines since as far back as the mid 1990s due to deflated gold prices now
have a new lease on life, he says. So the race is now on to commercialize the
best of them, a tiny handful of which could one day be huge money makers.
However, not all of the world’s headline-grabbing
gold finds are old news stories in search of a happy outcome. There have been a
handful of major success stories in the making during the past several years.
The most recent of which involved the Vancouver-based mining junior, Exeter
Resource Corporation (TSX.V: XRC) NYSE-A: XRA), which is developing its
world-class Caspiche gold/copper porphyry deposit in mining-friendly Chile.
The company caused quite a stir in the investment
community in September by announcing an updated resource estimate of 19.8
million ounces of gold, 137 million ounces of silver and 4.8 billion pounds of
copper. On an equivalent ounce basis – using a US $800 gold price, a US $12
silver price and a US $2.00 per pound copper price – this translates into no
less than 33.7 million ounces of gold.
Wendell Zerb, a mining analyst for the Vancouver
brokerage firm Canaccord Adams has been following Exeter’s fortunes. And he
believes the company’s Caspiche deposit has “the earmark of being a very
And though such elephant-sized deposits are not yet
an endangered species, they are becoming increasingly elusive, he adds. “As for
making new (world-class) discoveries very close to the surface, the real obvious
assets have already been discovered. So it does take more effort and
expenditures than it used to.”
Zerb suggests that it would be premature for Exeter
to consider its discovery to be one of the most remarkable mining success
stories of this decade. But the signs to date are encouraging, especially with
the deposit beginning to measure up favorably to the nearby, geologically
comparable Cerro Casale gold-copper deposit.
Jointly owned by the mining heavyweights Barrick
Gold (TSX: ABX) (NYSE: ABX) and Kinross Gold (TSX: K) (NYSE: KGC), Cerro Casale
is a huge prospective mine-in-the-making that boasts a 23-million-ounce gold
resource, along with six billion pounds of copper.
Meanwhile, some other industry commentators point
to the fact that major gold mining companies are continually struggling to
replace mined-out reserves. Especially their high-grade ore, much of which was
severely depleted when gold was fetching much lower prices.
Consider the fact that the world’s top trio of
producers (Barrick Gold, Anglogold Ashanti and Newmont Mining), alone, each
generate between 5 to 8 million ounces of gold per annum. That means that at
least one new multi-million ounce deposit needs to come on-stream every year
just to replace this output. This isn’t happening.
Moreover, the advent of $1,000-plus gold prices
still won’t speed up 3-7 year mine developmental timelines – ones that
invariably involve time-consuming regulatory hurdles. Such a scenario will no
doubt help to underpin high-flying gold prices for the foreseeable future. And
that’s good news for companies like Exeter Resource, which will see their
much-envied monster gold assets become even more valuable.