Major gold discoveries failing to replace production
September 15, 2013 9:03 PM ET
By Jim Lowrey
Gold exploration budgets directed at finding and defining new discoveries — grassroots plus 75% of late-stage — have increased significantly since 1999 and reached an all-time high of more than US$6 billion in 2012, according to "Strategies for Gold Reserves Replacement 2013 — Update," a study recently completed by SNL Metals Economics Group.
As it takes at least three years to define a major discovery (a minimum of 2 million ounces of contained gold), it is too early to judge the success of recent exploration efforts; however, data for 1990-2012 show that the total gold found in major discoveries fell short of replacing global gold production, particularly over the past 15 years.
From 1990-1997, companies' annual discovery-oriented gold exploration budget total more than doubled from US$930 million to almost US$2.2 billion, and the average cost per discovery of the 103 discoveries made during that period was US$94.4 million. From 1998-2002, exploration budgets slumped along with gold prices, and the average cost among the 31 discoveries in the period was US$132.7 million. Driven largely by rising gold prices, exploration budgets increased an average of 31% annually from 2003-2012, with the exception of a dip in 2009. Excluding the past three years to account for underexplored new deposits, the average cost per discovery among the 69 made from 2003-2009 increased to US$202.5 million.
Based on a 75% resources-to-reserves conversion rate and a 90% recovery rate during production, the estimated potential future production from discoveries made from 1990-2012 averaged 57.3 million ounces per year — only 75% of the global gold production average of 76.3 million ounces per year over the same period. While it is reasonable to expect resources in these discoveries to grow over time with further exploration, to date only half the total resources in discoveries since 1990 has been converted into reserves or put into production.
As SNL MEG data shows, from 1998-2012, gold explorers found 107 major gold deposits, averaging 7.5 million ounces each, in 36 different countries, adding 800.8 million ounces of gold to global reserves and resources — 56% of the 1.2 billion ounces of gold produced during the period, after allowing for conversion of resources to reserves and recovery losses.
Regionally, about 23% of the 800.8 million ounces of discovered gold was in North America at a discovery-oriented exploration cost of US$49/oz; 21% in Latin America at about US$49/oz; 19% in Africa at US$33/oz; 10% in Europe at US$13/oz; 8% in Australia at US$61/oz; 8% in Pacific Ocean Islands at US$30/oz; 6% in former Soviet Union countries at US$33/oz; 2% in other Asian countries at US$75/oz; and 2% in the Middle East at US$10/oz. Greenfields discoveries accounted for 67% of the gold found, while brownfields discoveries made up 33% of the total.
In addition to falling short of replacing mine production over the period, the amount of discovered resources that will reach production will inevitably be reduced due to factors affecting their economic viability such as location, politics, market conditions, and capital and operating costs. Given the increasing cost to replace production from major discoveries from 1998-2009, it remains to be seen how recent exploration efforts will translate into new and expanded discoveries in the 2010-2012 period.
Copyright © 2013, SNL Financial LC
SNL: SNL MEG Research: Major gold discoveries failing to replace production | SNL
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