Will gold price surge spur high-value mine discoveries?
Gold prices have risen nearly 20% this year to come within striking distance of all-time highs, as low yields and central bank largessedrive investors towards the precious metal.
The yellow metal is now trading above the psychological level of $1,800 (€1560) per ounce — the highest since 2011 when it touched a record high of $1,890 per ounce — with demand also supported by worries of delayed and uneven economic recovery amid rising coronavirus cases in several parts of the world which have reinforced gold’s safe-haven appeal. Gold has been the best-performing major asset class this year.
“The collapse in interest rates and bond yields reduces the opportunity cost of holding gold in nominal terms,” Adrian Ash, director of research at investment firm BullionVault, told DW. “Rising inflation expectations, driven by unprecedented peacetime [fiscal] deficits plus central-bank stimulus, make rare, uninflatable gold an appealing alternative to cash or credit investments that are certain to return a loss in real terms.”
Gold ETFs on a tear
The demand for the precious metal has mainly been driven by record inflows in gold-backed exchange traded funds (ETFs), which offset falling demand for physical gold in key markets such as China and India.
Gold ETFs attracted inflows of 734 tons — equivalent to $39.5 billion — in the first half of this year, which pushed global holdings in these products to new all-time highs of 3,621 tons, the World Gold Council data showed. Gold ETF inflows in the first six months have surpassed the largest annual gain of 646 tons seen in 2009.
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On the trail of Australia’s gold rush
Typical for the West Australian Outback
Blue skies, red earth, and leveled slopes. In the distance, miles of curiously artificial-looking mountain ranges. There are mining spoils everywhere, some still bare, others with new plants. Mining is the central priority here.
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On the trail of Australia’s gold rush
Scars of an abused landscape
Gold helped write West Australia’s history. The Super Pit, Australia’s biggest gold mine, is the fourth biggest in the world. It’s a gaping 3.5 kilometers (2.2 miles) long, 1.5 kilometers wide and currently around 620 meters deep.
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On the trail of Australia’s gold rush
Battle over materials
The precious bounty is hauled out of the earth by giant mining equipment with wheels twice the size of an average person. With a single tire costing as much as 40,000 euros ($42,400), these monster vehicles will set a mining company back some 3 million euros. But they do pull their weight. Each one can transport up to 240 tons of rock. A full tank of gas holds 3,800 liters (1,000 gallons).
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On the trail of Australia’s gold rush
A city for a pit
The town of Kalgoorlie lives from gold mining. A collection of one-story buildings and the occasional Victorian house, the town is located some 600 kilometers (372.8 miles) northeast of Perth. Most of the 30,000 people who live there are under 30 and work in the mining sector.
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On the trail of Australia’s gold rush
Questa Casa
Kalgoorlie used to have as many as 18 brothels. Now only two remain. They are frequented by men who work in the Super Pit during the week and seek distractions on weekends aside from drinking in pubs.
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On the trail of Australia’s gold rush
965 kilometers…
…is how long the Golden Quest Discovery Trail stretches. It spans an area the size of Greece. Along abandoned gold fields, mining facilities and settlements, the story of the gold rush unfolds. What’s left are legends, red dust, abandoned former mining cities and strong-willed people.
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On the trail of Australia’s gold rush
A train on wheels
“Road trains” are typical for the area. These 50 meter-long (164-foot) tractor trailers are often laden with cement, spare parts or whatever other essentials people in the outback need – even milk.
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On the trail of Australia’s gold rush
Go big or go home
Apart from gold, other rare earths such as nickel and cobalt are also in high demand. But they have to be dug out of the ground first. For that reason, unemployment at the heart of Australia’s mining industry is nearly unheard of. For the miners of such treasures, a job is guaranteed.
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On the trail of Australia’s gold rush
Tailing ponds shape the landscape
The landscape in this corner of the Australian desert is spotted with rock piles and plateaus. From afar, they could easily be mistaken for naturally raised areas of land, but a closer look reveals earth ploughed up in search of gold and other precious metals.
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On the trail of Australia’s gold rush
The luck of the Irish
Australia’s gold rush was kicked off 120 years ago when an Irish immigrant named Paddy Hannan, by sheer luck, discovered lumps of gold in Kalgoorlie. Thousands of gold diggers and fortune hunters promptly descended on the once inhospitable area, but only a fraction of them ever struck it rich. The rest kept chasing a dream to their graves.
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On the trail of Australia’s gold rush
Everyone’s a gold digger
It’s said that not all that glitters is gold, but that hasn’t stopped most Western Australians from moonlighting as miners. All that it takes to get in on the action is the equivalent of 20 euros ($21.15) and a passport. That’ll get anyone – locals and tourists alike – a prospector’s license, which stays valid for life.
Demand for gold was also bolstered by central banks, which continued to amass the precious metal this year. The banks added 181 tons of gold to their reserves till May this year amid global uncertainty and volatility.
A survey by the World Gold Council in May showed that the number of central banks buying gold is expected to increase substantially this year. The increase in appetite comes at a time gold purchases by central banks have reached record levels, with around 650 tons bought in 2019 alone. A vast majority of the respondents cited negative interest rates and gold’s performance during times of crisis as an important reason to hold the metal.
“The factors that have driven demand for gold in the first half of the year are not going to change much in the second half,” John Reade, chief market strategist at the World Gold Council, told DW.
Citibank analysts expect the US dollar gold price to touch record high in the next six-to-nine months. The price has already reached new record highs in Indian rupees and Turkish lira, among others.
Loosen the purse strings
The surge in gold prices would allow gold miners to loosen their purse strings and spend on boosting production, even possibly on exploration of new mines, after years of cost cutting amid declining prices. Global exploration budgets have more than halved from their 2012 highs of around $10 billion.
In the past few years, gold miners have turned their focus away from growing production at any cost to focusing on economic metrics like free cash flow generation in the face of investor pressure.
They have also struggled to discover new deposits to replace the lost production, prompting several experts and industry magnates to forecast a perpetual decline in gold production from its current peak.
The rate of gold mine discoveries has declined over the past three decades, World Gold Council figures show.
Among the new discoveries, there have been hardly any that experts call “world class” deposits. These are typically large high-grade deposits with over 5 million ounces of gold reserves that can be turned into profitable mines capable of producing over 250,000 ounces of gold. The average grade of the new gold deposits — the amount of gold that can be extracted per ton — has also been declining.
Junior miners are starting to benefit from the gold rush. American Pacific Mining with market capitalization of less than $20 million, for example, recently raised $3 million — six times more than it had initially planned
New frontiers
But there are others who blame low gold prices for fewer discoveries, while stressing that the world is not running out of gold. They say higher prices and technological advancements would help push miners to explore new frontiers for the precious metal, including the seabed and possibly even asteroids.
Currently, Australia, Canada and the United States absorb 40% of global spending on exploration. Miners could now potentially turn to riskier, less explored countries in Latin America and Africa.
Mining majors have stayed away from exploring for greenfield mines over past decade, focusing instead on older, known deposits, the so-called brownfield projects. They have relied on junior miners or smaller miners to search for greenfield mines. But the smaller miners have struggled to convince investors to take a punt on them. That seems to be changing with the rise in gold prices which is prompting increasing investor interest in the juniors.
Matthew Miller, vice president at CFRA Research in New York, while he expects exploration budgets to increase, he does not think it would have any meaningful impact on the gold mine supply.
“We think we have already entered the era of “peak gold” and there is very little that gold miners can do to change it,” he told DW. “At $2,000 per ounce gold, CFRA thinks it opens up new exploration frontiers, but most miners would need to see a sustained higher price to commit capital to higher-cost projects and therefore, we are unlikely to see a significant increase in exploration success.”
Article source: https://www.dw.com/en/will-gold-price-surge-spur-high-value-mine-discoveries/a-54255845?maca=en-rss-en-all-1573-rdf