As gold rebounded today from under the average “all-in” cost of production of $1,231/oz, I thought it a good time to take a look at the future of gold supplies and the gold mining industry as a whole. Some analysts believe that we have already hit “peak gold,” where all the easily-accessible high-grade gold reserves have been found. (See the infographic by Visual Capitalist and Natural Resource Holdings for an overview.)
As mining companies have to search in more remote or politically unstable regions for viable deposits, the expenses and risks grow. The recent drop in gold prices has curtailed exploration efforts and companies are also scaling back or delaying development of known low grade gold reserves.
Add to this, the fact that some known reserves are economically nonviable. For instance, there are many known gold reserves in South Africa, that are 4km (2.5mi) deep. The costs of pumping fresh air and supplying electricity to operations so deep that half the mineworkers’ shift is spent traveling to and from the mine face makes these reserves unprofitable and dangerous, which is why some companies are developing gold mining robots that will controlled from the surface. These measures are still very expensive, but may be a sign to come for other gold producing nations.
South Africa could be used as a harbinger for what awaits the global gold mining industry. As easily-reachable deposits have been mined, production has dropped while labor expenses have rapidly increased to the highest in the world. South Africa was the world’s largest gold producer in 1996, but has dropped to sixth place. Production peaked in 1970 at 1000 tonnes, but has dropped by 75%.
The problem isn’t confined to South Africa. The average grade of reserves for the 12 largest gold mining companies has dropped 51% from 2001 to 2011, with the global average of known reserves now barely over 1 oz per tonne. This means one tonne of ore has to be blasted, mined, transported, smelted, and refined to get a single gram of gold. It takes the refining of 31.1 metric tonnes of ore to make one troy ounce of gold.
Peak gold and growing domestic demand may be why China has spent $4 billion in the last two years to fund acquisition of foreign gold mines in Australia, Africa, and Latin America. China is already the #1 gold producer in the world, hitting an estimated 440 tonnes this year, with it all being retained in-country. Gold imports into China are estimated to increase to over 1100 tonnes, making the Middle Kingdom the world’s top gold consumer as well. (Gold production and import numbers are a state secret.)