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Gold Mine Output in Key Countries Could Reach “Generational Lows”

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Tuesday marked the 167th anniversary of the discovery of gold in Ballarat, Victoria, Australia. Since then, the Aussies have become the second largest gold producing country in the world. But analysts project gold output in the Land Down Under, along with several other key countries, could slump to “generational lows” in the midterm. 

Bullion production has grown for the last nine years, hitting an all-time high in 2017, and gold output has generally increased each year since the 1970s. But there are signs that output is beginning to plateau. Some analysts even believe we may be at or near “peak gold” — the point where the amount of gold mined out of the earth will begin to shrink every year

While world gold output hit record highs in 2017, it only grew by 5.7 tons according to the World Gold Council. That represented the smallest increase since 2008.  According to a report by S&P Global Market Intelligence, while gold production will increase marginally over the next three years, there are troubling signs on the horizon.

In its the Gold Pipeline report, S&P forecasts a 9% fall in Australian gold production in 2020 and expects the country’s bullion output to reach a generational low of 6.8 million ounces by 2022. That represents a 33% drop in just three years.

The report also projects a 1.9 million ounce decline in Peruvian gold output by 2022. As Mining.com reports, “This, as no new gold mines have begun production in the country since the start of 2017, and only one project seems likely to go online in the next five years.” Peru ranks sixth in the world in overall gold production.

We’ve reported on South Africa’s woes. Once the world’s leading gold producer, that country could run out of gold within four decades. Analysts say that at current production levels, South Africa has only 39 years of accessible gold reserves remaining.

Canada and some West African countries including Ghana, Mali, Burkina Faso, Guinea, Cote d’Ivoire, Senegal, Liberia, Sierra Leone and Mauritania will take up some of the slack, but the S&P report said the global outlook for gold production does not look positive beyond 2022.

For instance, Mining.com highlighted the fact that much of Canada’s near-term growth is coming from discoveries made in the past 25 years. At the same time, discovery rates have fallen globally with some of the larger undeveloped projects facing significant delays. Analysts expect output from current operations to drop by as much as 15% by 2022 mainly due to depletion or production drops tied to falling grades.

Last May, the head of one of the world’s largest gold mining companies said we’ve found all the gold. Ian Telfer serves as the chairman of Goldcorp Inc., a worldwide gold mining company based in Canada. During an interview with the Financial Post, he said the world has reached “peak gold.”

If I could give one sentence about the gold mining business … it’s that 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.” 

Telfer is not the first person to suggest peak gold is upon us. During the Denver Gold Forum last September, World Gold Council chairman Randall Oliphant said he thinks the world may have already reached that point. Franco-Nevada chairman Pierre Lassonde also expects a significant dip in gold production in the coming years.

Investors should never lose sight of the most basic fundamentals – supply and demand. The gold industry may well be entering a long-term — and possibly irreversible — period of less available gold. As mining companies find it more difficult to pull gold out of the earth, it will mean less gold for refiners to produce for the consumer market. Remember, gold gets its value from its scarcity.

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