EXPLORATION — American gold producers investing less at home: survey

In 1997, for the first time in three years, worldwide exploration expenditures of U.S. gold producers decreased, down 9% to US$582 million, according to a survey conducted by the Washington, D.C.-based Gold Institute.

The decrease is worrisome as it follows a long upward trend that saw a doubling of expenses to $629 million in 1996 from US$301 million in 1992.

According to the survey, a declining gold price combined with cost containment measures will cause global exploration to shrink by an additional 28% in 1998.

“Exploration is the keystone of the mining industry,” says John Lutley, president of the Gold Institute. “The long-term viability of a company — and the industry — depends on the discovery of new gold deposits and the development of new mines. If current spending trends are not reversed, it is likely that U.S. gold mine production will begin to decline significantly, starting in the next five years.”

Since 1980, nearly US$18 billion has been invested in exploration and development by the gold industry in the U.S. alone. Of that sum, US$3.4 billion has been invested in exploration. In recent years, however, delays in securing permits have accelerated the flight of exploration capital from the U.S. and led to a record increase in spending overseas. As a result, the percentage of dollars spent domestically has declined to only about 25% in 1998 from 51% in 1993.

According to the report, total exploration expenditures in the U.S. remained virtually unchanged from 1992 to 1997. However, exploration spending in the U.S. is projected to decline to US$103 million this year from $160 million in 1997 — a 36% drop.

From 1992 to 1997, spending in Latin America, Australia and the South Pacific by U.S. producers grew dramatically. Exploration expenditures in Latin America alone increased six-fold.

However, projections show that exploration spending in Latin America will decline nearly 39%, to US$148 million in 1998 from $241 million in 1997. The report also shows that expenditures by U.S. producers in Australia and the South Pacific dropped to US$70 million in 1997 from a record $95 million in 1996. In 1998, they are expected to diminish further, to US$61 million.

The annual survey monitors the exploration spending of 18 U.S. gold producers on a country-specific basis. These “senior producers” account for 81% of total U.S. gold production. The findings of the report are used by analysts to track industry trends and the future of U.S. and overseas gold production by North American producers.

The Gold Institute points out that the U.S. ranks as the world’s second-largest gold producer, behind South Africa, but ahead of Australia, Canada, China and Russia. In 1998, production of gold in U.S. mines is expected to reach 11 million oz., or 11 times greater than it was in 1980. More than 110,000 jobs — among the highest paid in the country — have been created by the domestic gold mining industry in the past 15 years.

“There is a growing need to develop underground mines,” says Lutley. “To be profitable, the ore grade has to be considerably higher, since underground ores are more expensive to process and more costly to mine.”