We’re obsessed here at Southbank Investment Research. I knew exactly what I should write about when Harry asked me to cover for him last week. Just as he finished asking me, Gold by Spandau Ballet boomed out of the office speaker. We clearly can’t get enough of the stuff so here’s my (hopefully insightful) two cents on developments for the metal.
One of the biggest attractions gold has as an investment is also one of its biggest issues. Gold, as we all know, is a rare and finite material. It’s because of that reason that its price can’t be easily manipulated.
No central bank or government can print more of the stuff, and no company can issue more of it on an exchange.
Gold is what it is.
But its value ensures that there will always be miners out there who are desperate to find more.
That’s currently a bit of an issue.
Supply might start struggling to meet demand
Gold deposits across the world are depleting and miners are struggling to find more sources or utilise existing ones better.
Across the major gold mining nations we’re seeing the same thing. Reserves have peaked and we’re unlikely to be able to yield much more from them, even with technological advancement. McKinsey & Company recently put together a report on the mining industry’s shape. What it’s found is eye-opening (emphasis mine):
South Africa’s Witwatersrand Basin is the single largest source of gold in history having produced more 150 BOZ of gold – approximately 40 percent of the gold ever mined. After production peaked in 1970, having extracted more than 1,000 tons of gold, mining volume has steadily declined in South Africa, with the country only producing 157 tons in 2017 – an 84 percent decline. Based on known reserves and mines such as Mponeng – the world’s deepest mine – estimates suggest that gold mining in South Africa may be uneconomical by 2050.
The issue of declining reserves is by no means isolated to gold mining companies on the Witwatersrand Basin: many of the world’s major gold fields – for example, the United States’ Carlin Trend and Australia’s Super Pit – are also facing the issue of depleting reserves. Between 2012 and 2017, gold reserves of large gold companies declined 26 percent from 967 MOZ to 713 MOZ, while the average life of mine dropped from 19 to 16.5 years. At the same time, exploration activities are yielding fewer high-grade world-scale deposits. While technology may make it possible to convert additional reserves that are currently uneconomical, we believe that there is a risk of exhausting, or nearly exhausting, reserves for many gold companies, which thus increases the strategic imperative to replenish and grow reserves. Indeed, between 2012 and 2017, only two companies – Agnico Eagle and Nord Gold – had more remaining years of production at the end of the period than at the beginning.
So existing mines are on their last legs. We know that the solution is to find more but that’s obviously much easier said than done. You may think that gold miners just aren’t putting in the effort to find new deposits.
It’s undoubtedly costly, and in today’s climate maybe it’s a cost they’re not willing to embrace. Once they pull their finger out we’ll see a rise in output, just like we did with shale gas right?
Well the reality is actually the exact opposite of that. Over the past decade, industry spend on gold exploration has exceeded $50 billion, which is almost double the cumulative spend of the preceding 20 years.
Unfortunately, that extra spend hasn’t yielded the best results. There have been few tangible discoveries from this additional spend and effort. Over the last decade, 9 of the 20 largest companies have failed to find any gold deposit large enough to be considered a major discovery:
One of the biggest sufferers may have just found a solution
Australia, a country that owes a lot to its mines, is being hit particularly hard. Its gold prospects are looking a bit dire…
As we can see, production in Australia is expected to fall dramatically within the next few years. Soon countries like Canada and even Russia could overtake them.
Things aren’t looking great. But Australia may have just stumbled upon a miracle which could completely alter and revamp its industry.
This is where I get excited. I’m always in awe when I see how dramatically technology can change our lives. But I love it when we get an unexpected helping hand from Mother Nature.
What magic power do you think the fungus in this image has?
It’s like a mushroom, so maybe it helps get miners high and they think more creatively about finding gold. That would be fun, but that’s not how it helps.
Mere weeks ago, it was discovered that this fungus collects particles of gold from its environment and attaches them to its strands.
It does what many of us wish we could do. It “magics” gold from out of nowhere!
Not only that but it can’t get enough of the stuff! As the co-author of the study Tsing Bohu details (emphasis mine):
“There is an underlying biological benefit from this reaction,” Bohu tells the ABC. “We found gold-loving fungi can grow faster and bigger relative to other fungi that don’t work with gold.”
Understandably, this discovery has got scientists and miners alike excited. Everyone is now theorising on exactly how we can get this fungus to help locate new gold deposits buried deeper underground.
This fungus could help move deeply buried gold closer to the surface. Reserves that we currently have no idea even exist, could soon be within arm’s reach.
Now might be the time to get into forest foraging!
We may be on the verge of utilising entirely new reserves of gold. So it could be a very exciting time to get involved with the market.
With all this news on gold reserves, new discoveries and scientific breakthroughs, it may feel that investing would be very complex. But the reality is it’s much easier than you would think.
Our very own gold expert, Eoin Treacy, has packed 20 years of gold investment knowledge into his gold investor’s master plan.
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The best part is, you can get your own gold investor’s master plan delivered to your door for just £3.50. Click here to get started.
Until next time,
Research Analyst, Southbank Investment Research