We're a Long, Long Way From Running Out of Gold, , on October 1, 2020 at 7:00 am

By
On October 1, 2020
Tags:

(Bloomberg Opinion) — Here’s one potential reason to add some bullion coins or bars to your investment portfolio: They’re not making any more of them.All the gold that’s ever been mined would fit into a cube with edges 22 meters long — small enough to fit into three Olympic-sized swimming pools. Each year, miners and pawnbrokers add another 4,000 to 5,000 metric tons to an existing 197,576 ton pile, but jewelry demand alone uses up about half of that.With the metal hitting a record $2,075 a troy ounce in August, the concern we’re heading toward peak gold has reared its head again. The industry needs to commission 8 million ounces of projects by 2025 to maintain last year’s production levels, consultants Wood Mackenzie wrote in June, requiring some $37 billion of capital investment. Mine production fell last year for the first time in more than a decade. Even the British Broadcasting Corp. has been asking whether we’re at risk of running out.At the core of the concern is a longstanding trend in the gold mining industry: The percentage of gold in ore reserves is falling, from more than 10 grams per ton in the late 1960s to barely more than 1 gram per ton nowadays. Those concentrations are extraordinarily low — equivalent to grinding up and separating a Statue of Liberty’s-worth of ore to recover a teaspoon of precious metal. At some point, the grade must get so poor that it becomes impossible to recover the gold economically.The thing is, we don’t know when that will be — and all the evidence indicates that we’re still a long way from finding out.Take Newcrest Mining Ltd.’s Cadia East mine 200 kilometers (124 miles) to the west of Sydney. The grade there is just 0.45 grams per ton — more than two Statue of Liberty’s-worth per teaspoon — and yet the mine is one of the world’s most profitable, with costs of $160 per ounce, which would deliver a margin of more than 90% at current gold prices(2).Two factors drive that. One is economies of scale: Cadia is one of the world’s top 10 gold mines measured by output. Since the dawn of the mining industry, grades of almost every mineral have been falling because, by definition, the highest-grade, most easily discovered resources are the ones that get exploited first. The growth of the sector has always depended upon better, higher-volume extraction technologies offsetting this fact.The place where many of the highest-grade major gold deposits are still found, South Africa, is increasingly a backwater. That’s because it’s simply so difficult to extract ore from sweltering tunnels kilometers underground using hand-operated tools. By comparison, the immense blasting and dump-truck operations used to exploit lower-grade mines in Siberia, Oceania and Nevada are far more efficient.The other factor is that most gold doesn’t occur on its own. Indeed, the best deposits globally are porphyry, a mineral that’s also one of the world’s biggest sources of copper. The operator of the world’s biggest gold mine isn’t a gold miner at all but copper producer Freeport-McMoRan Inc., whose Grasberg pit on the Indonesian side of New Guinea produced nearly twice as much gold in 2018 as its nearest rival, Polyus PJSC’s Olimpiada. At Newcrest’s Cadia, production costs are so low because for every ounce of gold that’s mined you get about 140 kilograms (309 pounds) of copper, worth $900 or so at current prices.While the issues of mine depletion highlighted by Wood Mackenzie are real, high gold prices like those we’re seeing at the moment are exactly the circumstances that will encourage more exploration and development activity to make up the shortfall. Though people have been digging up gold for seven millennia, it’s constantly being discovered in the most unexpected places.Mining of the yellow metal in Australia’s Victoria state all but ceased a century ago after the veins that drove its nation-building 19th-century gold rush were tapped out. Then in 2015 Kirkland Lake Gold Ltd. discovered a new ore body near its uninspiring Fosterville mine site, and realized it was sitting on top of one of the world’s highest-grade deposits, causing its market capitalization to grow nearly 100-fold in five years.The same year, a unit of Zhaojin Mining Industry Co. discovered a new deposit two kilometers below the surface of the Bohai Sea off the coast of northeast China’s Shandong province. With some 212 metric tons of proven and probable reserves, it’s now one of the world’s largest gold deposits.There’s no reason to think that trend is about to break. About half of the world’s gold has been mined since 1976, and if anything the pace is accelerating as grades fall. Worldwide, gold production is up by about a third over the past decade, far more than the 15% increase in oil output. The best reason for investing in gold is still that it provides diversification to an investment portfolio — not that the world doesn’t have enough of it. One day, we may run out of gold. We’re a long, long way from that moment now.(1) The costs are for both Cadia East and the adjacent Ridgeway mine combined — but Ridgeway is similarly low-grade, at 0.54 grams per ton.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.,

We're a Long, Long Way From Running Out of Gold(Bloomberg Opinion) — Here’s one potential reason to add some bullion coins or bars to your investment portfolio: They’re not making any more of them.All the gold that’s ever been mined would fit into a cube with edges 22 meters long — small enough to fit into three Olympic-sized swimming pools. Each year, miners and pawnbrokers add another 4,000 to 5,000 metric tons to an existing 197,576 ton pile, but jewelry demand alone uses up about half of that.With the metal hitting a record $2,075 a troy ounce in August, the concern we’re heading toward peak gold has reared its head again. The industry needs to commission 8 million ounces of projects by 2025 to maintain last year’s production levels, consultants Wood Mackenzie wrote in June, requiring some $37 billion of capital investment. Mine production fell last year for the first time in more than a decade. Even the British Broadcasting Corp. has been asking whether we’re at risk of running out.At the core of the concern is a longstanding trend in the gold mining industry: The percentage of gold in ore reserves is falling, from more than 10 grams per ton in the late 1960s to barely more than 1 gram per ton nowadays. Those concentrations are extraordinarily low — equivalent to grinding up and separating a Statue of Liberty’s-worth of ore to recover a teaspoon of precious metal. At some point, the grade must get so poor that it becomes impossible to recover the gold economically.The thing is, we don’t know when that will be — and all the evidence indicates that we’re still a long way from finding out.Take Newcrest Mining Ltd.’s Cadia East mine 200 kilometers (124 miles) to the west of Sydney. The grade there is just 0.45 grams per ton — more than two Statue of Liberty’s-worth per teaspoon — and yet the mine is one of the world’s most profitable, with costs of $160 per ounce, which would deliver a margin of more than 90% at current gold prices(2).Two factors drive that. One is economies of scale: Cadia is one of the world’s top 10 gold mines measured by output. Since the dawn of the mining industry, grades of almost every mineral have been falling because, by definition, the highest-grade, most easily discovered resources are the ones that get exploited first. The growth of the sector has always depended upon better, higher-volume extraction technologies offsetting this fact.The place where many of the highest-grade major gold deposits are still found, South Africa, is increasingly a backwater. That’s because it’s simply so difficult to extract ore from sweltering tunnels kilometers underground using hand-operated tools. By comparison, the immense blasting and dump-truck operations used to exploit lower-grade mines in Siberia, Oceania and Nevada are far more efficient.The other factor is that most gold doesn’t occur on its own. Indeed, the best deposits globally are porphyry, a mineral that’s also one of the world’s biggest sources of copper. The operator of the world’s biggest gold mine isn’t a gold miner at all but copper producer Freeport-McMoRan Inc., whose Grasberg pit on the Indonesian side of New Guinea produced nearly twice as much gold in 2018 as its nearest rival, Polyus PJSC’s Olimpiada. At Newcrest’s Cadia, production costs are so low because for every ounce of gold that’s mined you get about 140 kilograms (309 pounds) of copper, worth $900 or so at current prices.While the issues of mine depletion highlighted by Wood Mackenzie are real, high gold prices like those we’re seeing at the moment are exactly the circumstances that will encourage more exploration and development activity to make up the shortfall. Though people have been digging up gold for seven millennia, it’s constantly being discovered in the most unexpected places.Mining of the yellow metal in Australia’s Victoria state all but ceased a century ago after the veins that drove its nation-building 19th-century gold rush were tapped out. Then in 2015 Kirkland Lake Gold Ltd. discovered a new ore body near its uninspiring Fosterville mine site, and realized it was sitting on top of one of the world’s highest-grade deposits, causing its market capitalization to grow nearly 100-fold in five years.The same year, a unit of Zhaojin Mining Industry Co. discovered a new deposit two kilometers below the surface of the Bohai Sea off the coast of northeast China’s Shandong province. With some 212 metric tons of proven and probable reserves, it’s now one of the world’s largest gold deposits.There’s no reason to think that trend is about to break. About half of the world’s gold has been mined since 1976, and if anything the pace is accelerating as grades fall. Worldwide, gold production is up by about a third over the past decade, far more than the 15% increase in oil output. The best reason for investing in gold is still that it provides diversification to an investment portfolio — not that the world doesn’t have enough of it. One day, we may run out of gold. We’re a long, long way from that moment now.(1) The costs are for both Cadia East and the adjacent Ridgeway mine combined — but Ridgeway is similarly low-grade, at 0.54 grams per ton.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

,

Instant Quote

Enter the Stock Symbol.

Select the Exchange.

Select the Type of Security.

Please enter your First Name.

Please enter your Last Name.

Please enter your phone number.

Please enter your Email Address.

Please enter or select the Total Number of Shares you own.

Please enter or select the Desired Loan Amount you are seeking.

Please select the Loan Purpose.

Please select if you are an Officer/Director.

High West Capital Partners, LLC may only offer certain information to persons who are “Accredited Investors” and/or “Qualified Clients” as those terms are defined under applicable Federal Securities Laws. In order to be an “Accredited Investor” and/or a “Qualified Client”, you must meet the criteria identified in ONE OR MORE of the following categories/paragraphs numbered 1-20 below.

High West Capital Partners, LLC cannot provide you with any information regarding its Loan Programs or Investment Products unless you meet one or more of the following criteria. Furthermore, Foreign nationals who may be exempt from qualifying as a U.S. Accredited Investor are still required to meet the established criteria, in accordance with High West Capital Partners, LLC’s internal lending policies. High West Capital Partners, LLC will not provide information or lend to any individual and/or entity that does not meet one or more of the following criteria:

1) Individual with Net Worth in excess of $1.0 million. A natural person (not an entity) whose net worth, or joint net worth with his or her spouse, at the time of purchase exceeds $1,000,000 USD. (In calculating net worth, you may include your equity in personal property and real estate, including your principal residence, cash, short-term investments, stock and securities. Your inclusion of equity in personal property and real estate should be based on the fair market value of such property less debt secured by such property.)

2) Individual with $200,000 individual Annual Income. A natural person (not an entity) who had individual income of more than $200,000 in each of the preceding two calendar years, and has a reasonable expectation of reaching the same income level in the current year.

3) Individual with $300,000 Joint Annual Income. A natural person (not an entity) who had joint income with his or her spouse in excess of $300,000 in each of the preceding two calendar years, and has a reasonable expectation of reaching the same income level in the current year.

4) Corporations or Partnerships. A corporation, partnership, or similar entity that has in excess of $5 million of assets and was not formed for the specific purpose of acquiring an interest in the Corporation or Partnership.

5) Revocable Trust. A trust that is revocable by its grantors and each of whose grantors is an Accredited Investor as defined in one or more of the other categories/paragraphs numbered herein.

6) Irrevocable Trust. A trust (other than an ERISA plan) that (a)is not revocable by its grantors, (b) has in excess of $5 million of assets, (c) was not formed for the specific purpose of acquiring an interest, and (d) is directed by a person who has such knowledge and experience in financial and business matters that such person is capable of evaluating the merits and risks of an investment in the Trust.

7) IRA or Similar Benefit Plan. An IRA, Keogh or similar benefit plan that covers only a single natural person who is an Accredited Investor, as defined in one or more of the other categories/paragraphs numbered herein.

8) Participant-Directed Employee Benefit Plan Account. A participant-directed employee benefit plan investing at the direction of, and for the account of, a participant who is an Accredited Investor, as that term is defined in one or more of the other categories/paragraphs numbered herein.

9) Other ERISA Plan. An employee benefit plan within the meaning of Title I of the ERISA Act other than a participant-directed plan with total assets in excess of $5 million or for which investment decisions (including the decision to purchase an interest) are made by a bank, registered investment adviser, savings and loan association, or insurance company.

10) Government Benefit Plan. A plan established and maintained by a state, municipality, or any agency of a state or municipality, for the benefit of its employees, with total assets in excess of $5 million.

11) Non-Profit Entity. An organization described in Section 501(c)(3) of the Internal Revenue Code, as amended, with total assets in excess of $5 million (including endowment, annuity and life income funds), as shown by the organization’s most recent audited financial statements.

12) A bank, as defined in Section 3(a)(2) of the Securities Act (whether acting for its own account or in a fiduciary capacity).

13) A savings and loan association or similar institution, as defined in Section 3(a)(5)(A) of the Securities Act (whether acting for its own account or in a fiduciary capacity).

14) A broker-dealer registered under the Exchange Act.

15) An insurance company, as defined in Section 2(13) of the Securities Act.

16) A “business development company,” as defined in Section 2(a)(48) of the Investment Company Act.

17) A small business investment company licensed under Section 301 (c) or (d) of the Small Business Investment Act of 1958.

18) A “private business development company” as defined in Section 202(a)(22) of the Advisers Act.

19) Executive Officer or Director. A natural person who is an executive officer, director or general partner of the Partnership or the General Partner, and is an Accredited Investor as that term is defined in one or more of the categories/paragraphs numbered herein.

20) Entity Owned Entirely By Accredited Investors. A corporation, partnership, private investment company or similar entity each of whose equity owners is a natural person who is an Accredited Investor, as that term is defined in one or more of the categories/paragraphs numbered herein.

Please read the notice above and check the box below to continue.

Singapore

168 Robinson Road
#12-01 Capital Tower
Singapore 068912

New York

Coming Soon!

Dubai

Coming Soon!

Market Coverage