The Hidden Crisis in the Gold Business

By Michael J. Kosares / GoldSeek.com

Barrick CEO Jamie Sokalsky has some things to say about the gold mining business that will come as a revelation to many gold owners. In a speech at the London Bullion Market Association’s conference in Hong Kong last November, Sokalsky wades into a largely hidden crisis in the gold business — static mine production that has not responded positively to the rising prices over the last several years, and is unlikely to ramp up even if prices go higher from here.

“There are very few mega-sized gold mines currently in production in the world,” said Sokalsky. “In terms of a cross-section of total gold mines by size, there are about 400 gold mines producing. Only 156 of these, or about 40%, produce over 100,000 ounces per year. . .Twenty-one mines produce over 500,000 ounces per year. . .Only six mines produce over 1 million ounces. . .It is also interesting to note that although there have been some gold discoveries, none can be described as a super giant — that 20-million-plus ounce deposit. They are harder to find and that is directly impacting production growth because those super-giant discoveries are really the ones that can have a material impact on supply.”

Mine supply, according to the U.S. Geological Survey, is pretty much unchanged over the past 12 years — from 2560 metric tonnes in 2001 to 2700 metric tonnes in 2012. There was a dip in 2008 to 2280 metric tonnes.

Parenthetically, Barrick got some bad news in late April, when its Pascua Lama project — a 17.9 million ounce deposit (a near “giant” in Sokalsky terms) that straddles the Chile-Argentina border — was ordered closed by Chilean courts for environmental reasons. The trouble came after Sokalsky’s speech to the LBMA, so the outlook for global gold production is even tighter now than it was then. Work continues on the Argentina side, but Barrick says it might be forced to suspend spending on the mine if the regulatory issues “remain unclear,” according to a Reuters report.

Though there is always a possibility that the court decision might be reversed, Barrick’s problems at the Chile-Argentina border underscore the high risks in the mining business as pointed out by Sokalsky in his speech. Even strategically important mega-projects like the Pascua Lama can be derailed unexpectedly by exogenous events.