Prior to the coronavirus outbreak, peak gold supply was becoming a real possibility. Now, with exploration programs halted or cancelled and project disruptions hampering production, the summit is in sight, according to research firm Wood Mackenzie’s latest report.
As organic growth is waning, miners are looking to buy gold through mergers and acquisitions to secure their future. So far this has failed to significantly increase production. To avoid a perpetual decline in gold supply, the industry must see a rise in project development, the firm says.
Wood Mackenzie estimates the industry will need to commission 8 million ounces or 262 tonnes of projects by 2025 to maintain 2019 production levels.
This equates to roughly 44 projects. Based on the average project capital intensity of $4,610 per ounce per annum, Wood Mackenzie estimates the industry must invest approximately $37 billion on greenfield projects and restarts over the next 5 years.
“If all our probable projects were to come online before 2025, this would almost meet the requirement to maintain 2019 production levels,” said Rory Townsend, Wood Mackenzie’s head of Gold Research.
Investment and exploration in countries such as South Africa has all but dried up, with the gold mining industry plagued by power outages, labour strikes and regulatory uncertainty. This has prompted investors and miners to consider countries they deem to be more mining-friendly.
Ghana has been a significant beneficiary of this and overtook South Africa to become the largest gold producer in Africa in 2018.
Wood Mackenzie has identified around 260 projects that gold miners and investors could turn to. At a time of heightened economic uncertainty, the largest gold projects may struggle to secure financing until there is more clarity.
Meanwhile, Wood Mackenzie asserts smaller projects are proving an exciting proposition. They have the advantage of a lower initial capital outlay and can be typically brought online with speed and efficiency, particularly open pit deposits and mines that have previously been in operation. The drawback to these projects, Wood Mackenzie says, is the fact that they will struggle to nudge the needle for a material gold producer.