EDITORIAL PAGE — Gold and the Big Four

The gold industry is undergoing some fundamental changes. For proof of this, one need look no farther than the latest industry review by Gold Fields Mineral Services, entitled Gold 1995.

The review, which each year assesses the components of supply and demand, shows some interesting trends. Most notably, the study confirms that gold output is on the decline in the established “Big Four” Western countries of South Africa, the U.S., Australia and Canada.

Over the first six months of this year, overall world mine production is estimated to have fallen by 0.5% from a year ago. But the collective production of the Big Four dropped by 7% (equivalent to nearly 50 tonnes) in the first half of the year.

South Africa reported the largest decline in its mine production — about 10% — for the 6-month period. Gold production in the U.S. was down nearly 5% and, contrary to expectations, Australian production fell by a similar amount in the first half of the year. Canadian gold output, while clearly still on a downward trend, posted a relatively modest decline of about 2% over the first half.

These established gold producers are losing ground to a host of emerging producers, notably Indonesia, Ghana and several Latin American countries.

The strongest regional growth in gold production was recorded in Latin America, where output rose sharply in 1994. Strong gains were most notable in Peru, where the Yanachocha mines are now in production, and in Mexico, where a number of new mines have come on stream in recent years.

Looking ahead, Gold Fields predicts that Brazil, Chile, Peru and Mexico will steadily increase their gold production rates as new mines are built there.

And this appears to be a safe bet, as studies on exploration spending show that mining companies directed about 25% of their 1994 worldwide exploration budget to Latin America. In contrast, exploration expenditures in Africa (excluding South Africa) were a modest 5-10% of the world total.

Gold Fields also predicts that Papua New Guinea and Indonesia will each steadily increase their overall output in the years ahead. In PNG, the Lihir gold project is now being financed for production, while in Indonesia, the Grasberg-Ertsberg mine is being expanded to an annual production rate of well over 1 million oz.

Gold Fields still finds it difficult to assess accurately how production is faring in the former Soviet Union. However, it estimates that Russian production has been flat, with a slight increase in output in other countries comprising the Commonwealth of Independent States.

It is no secret to North American companies that the dynamics of the gold mining industry have changed dramatically, on both the supply and demand sides of the equation.

In the first half of 1995, the most dynamic region of the gold market was Asia. Fabrication and bar-hoarding demand both grew strongly in the first six months of this year, as they did in the second half of 1994. By contrast, Europe and North America showed a modest year-on-year growth in fabrication.

The pace of change within the gold mining sector should accelerate in the years ahead, as more and more North American companies seek global mining opportunities. In the face of all this competition, it will be interesting to see what steps Canada takes, if any, to keep its mining industry at home.