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January 31 2019

moneymetals

Peak Gold and the Coming Supply Crunch

peak-gold-supply-crunch-social.jpg

During the lackluster and otherwise unremarkable trading of 2018, a hugely important development took place in the precious metals markets. Gold production, in the estimation of some top industry insiders, peaked.

Peak gold represents the point at which the total number of ounces being pulled out of the ground by miners reaches a maximum.

It doesn’t necessarily mean gold production will suffer a precipitous fall. But it does mean the mining industry lacks the capacity to ramp up production in order to meet rising global demand and even higher prices would not make it happen.

One of the leading proponents of the peak gold thesis is Ian Telfer, chairman of Goldcorp (which was recently acquired by Newmont Mining to become the world’s biggest gold company).

Telfer remarked in 2018, “In my life, gold produced from mines has gone up pretty steadily for 40 years. Well, either this year it starts to go down, or next year it starts to go down, or it’s already going down… We’re right at peak gold here.”

We’ll soon find out whether his call for gold production to fall in 2019 pans out. If it does, the implications for precious metals investors are enormous.

The concept of peak gold is controversial, to be sure.

Skeptics point to the thwarting of peak oil over the past decade. Just as technological breakthroughs in fracking and horizontal drilling caused an unexpected surge in crude oil supplies, could not advances in gold mining techniques also lead to an unforeseen supply surge?

When human ingenuity combines with the right market incentives, nothing can be ruled out. But unlike crude oil which is a byproduct of decayed living organisms and exists in various grades all over the world, gold is a basic element that came to us from exploding stars billions of years ago.

Top 5 gold miners production 2017 vs 2018

The amount of gold in earth’s crust is fixed. By contrast, oil and other hydrocarbons can be produced synthetically from renewable biomass.

Perhaps one day we’ll mine for gold in space or generate it in nuclear reactors or particle accelerators. Theoretically, it’s possible. Practically, there’s no prospect of these unconventional methods of boosting earth’s gold reserves becoming economically viable in our lifetimes. It would take a true “moon shot” in the gold price and/or a technological breakthrough that might be decades away from coming to fruition.

In the meantime, the gold mining industry is experiencing a major wave of consolidation.

Last year Barrick Gold and Randgold merged. This year Newmont Mining acquired Goldcorp. Many lesser known junior mining and exploration companies have been or may soon be gobbled up by senior producers looking for an economical way to grow their reserves.

Developing new mines is expensive, time consuming, and risky.

Continue reading: https://goo.gl/siinuz

August 01 2018

moneymetals

Top Gold Miners Production Declined 15% While Costs Escalate

Even though the gold price increased in 2018, the top gold miners production declined while costs continue to escalate. Output at three of the top gold miners in the world fell in the first half of 2018 compared to the same period last year. With rising costs due to higher energy prices, on top of decreasing production, the top gold miners free cash flow declined precipitously in 2018.

While many analysts focus on the company’s profits or net income, I like to pay attention to its free cash flow. Free cash flow is nothing more than subtracting capital expenditures from the company’s cash from operations. Because the gold mining industry is very capital intensive, the company’s free cash flow is a better indicator of financial health rather than the net income.

As mentioned, all of the top three gold miners suffered production declines in the first half (1H) of 2018 versus the same period last year. The biggest loser was Barrick, whose production declined over 20% by falling to 2.1 million oz in 1H 2018 compared to 2.7 Moz in the previous year. Goldcorp’s production fell 10%, while Newmont’s output dropped by nearly 9%:

Top miners gold production 1h 2017 vs 1h 2018

Altogether, the top three gold mining companies’ production fell 15% or approximately 1 Moz in the first six months of 2018 versus last year. Even though Goldcorp isn’t the third largest gold miner in the world, the company has already posted its second-quarter results. AngloGold is the third largest gold miner, but it won’t publish its financial statements until August 20th. Also, Kinross is likely ranked number four ahead of Goldcorp, but the company posts its production figures in “gold equivalent ounces.” If a company has to publish its gold or silver production in “equivalent ounces,” then the analysis is a bit flawed in my opinion.

Regardless, these top three gold miners all experienced declines in production which impacted their financial balance sheets. To get a better idea of the true cost of production and the health of the gold mining industry, I have come up with an “Adjusted Earnings Breakeven” price as well as a “Free Cash Flow” breakeven price.

October 31 2017

moneymetals

BREAKING: China – World’s Largest Gold Producer Mine Supply Plummets 10%

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The world’s top gold producer saw its mine supply plummet by 10% in the first half of 2017. According to the GFMS World Gold Survey newest update, China’s gold production in 1H 2017 fell the most in over a decade. The fall in Chinese gold production is quite significant as the country will have to increase its imports to make up the shortfall in its mine supply.

The data in the GFMS 2017 Q3 Gold Survey Update & Outlook reported that Chinese gold mine supply declined 23 metric tons to 207 metric tons in the 1H 2017 versus the 230 metric tons during the same period last year:

China gold mine production (1h 2016 vs 1h 2017)

The report stated the reason for the decline in Chinese gold production was due to the government’s increased efforts to curb pollution as well as heightened awareness of environmental protection. Furthermore, GFMS analysts forecast that Chinese gold production will continue to deteriorate for the remainder of the year as production is scaled down.

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