Major’s gold reserves to last 14 years

Halifax, N.S.-based Metals Economics Group’s (MEG) recent study, Strategies for Gold Reserves Replacement: The Costs of Finding and Acquiring Gold, concludes that the world’s largest gold producers have on average replaced 200% of their total production over the previous 11 years at an average cost of US$38 per oz. through a combination of acquisition and exploration.

From 1995 to 2004, these 20 gold producers also increased their combined annual gold production by almost 70%, to 43 million oz. annually from about 25 million oz., and still maintained a remaining production life of 14 years in reserves at 2005 production rates, with additional resources available.

However, while the top 20 major gold producers have been successful in adding to their reserves, declining gold reserves replaced by exploration since 1997 may result in gold supply shortages in the long term.

Especially evident from MEG’s analysis is that recently discovered large deposits of more than 2.5 million oz. (a threshold at which major gold producers would consider development) are not adequate to replace the majors’ gold production over time.

The study says the discovery rate of major gold deposits has declined in each of the last eight years. From 1992 through 2005, total world mine output of gold was 1.1 billion oz. or 1.8 times the new resources discovered in deposits larger than 2.5 million oz.

To bring the point home, by the end of 2005, only 52% of the discovered resources had been upgraded to reserves. Although MEG expects the decline in discoveries will be reversed — the majors have more than doubled their annual gold exploration budgets over the last four years and the junior and intermediate companies increased their total exploration budgets by almost five times — the shortage of large, major-company-sized projects is likely to remain a critical issue for the largest gold producers.

MEG sees an average increase in mined gold production of about 3% annually from 2006 until 2010. This level of projected increase may be inflated further if current high gold prices prevail, and actual changes will of course depend on longer-term factors in the gold market.

Historically, only about half of feasibility-stage projects reach production within 10 years; MEG has therefore included 50% of the capacity of those projects. The net increase for the period is about 10 million oz. of new capacity.

Strategies for Gold Reserves Replacement addresses key issues for growth strategies for the gold mining industry by compiling information on all aspects of the supply side of gold. The information measures the relative costs of various growth strategies for individual gold-producing companies and the industry as a whole.

For more information on the study, visit www.metalseconomics.com

— The preceding is an edited information bulletin published by the Halifax, N.S.-based Metals Economics Group.