The Peak Gold Era Begins Now
The era of “Peak Gold” is upon us...
Let’s start by stating the obvious: There’s only so much gold in the ground, and people have been mining it since approximately 4700 BC.
At some point, the Earth will have given all it has to give. And after 7,000 years of mining we’ve just about reached that point.
Peak gold discovery was already hit in 1987, when 37 new primary gold deposits were uncovered. But by 2014, even with the advantage of modern technology, there were just three.
It may only be a few more years before that figure dwindles to zero.
In the meantime, with virtually no new discoveries, gold production has plateaued.
Global gold production hit a record high for seven consecutive years from 2009 to 2015. But that run came to an end this year. After edging up just 1% in 2015, gold production is on track to decline 3% in 2016.
And it’s only going to get worse from here on out.
London-based Metals Focus says output from existing mines will drop roughly 10% in the five years to 2020. And it may fall by a third in the 10 years to 2025, according to Bloomberg calculations.
This is something analysts and industry insiders have been talking about with greater urgency over the past year...
“I don't think we will ever see the gold production reach these levels again. There are just not that many new mines being found and developed."
-Chuck Jeannes, president and CEO of Goldcorp (The Wall Street Journal)
“The fourth quarter last year was in my opinion the peak quarter for fresh global mine supply. I think supply will drop by 15 to 20% over the next three to four years.”
-Vitaly Nesis, chief executive of Polymetal (The Financial Times)
“Falling grades and production levels, a lack of new discoveries, and extended project development timelines are bullish for the medium and long-term gold price outlook.”
- Kelvin Dushnisky, president of Barrick Gold (The Financial Times)
“We are having a heck of a time finding gold… Once supply from mines starts to decline and people start to realize the impact that’s going to have, I think it’s going to be incredibly bullish for gold. If gold went to $2,500 an ounce tomorrow, Goldcorp’s production wouldn’t change for the next four years. It can’t react to a change.”
-Ian Telfer, chairman of Vancouver-based Goldcorp (Bloomberg)
To Telfer’s point, major gold mining companies are watching helplessly as their projects dry up before their eyes, unable to replenish their pipeline with new deposits. And that’s despite the fact that exploration spending has surged by a factor of 10 over the past decade.
As a result, the industry is experiencing a massive wave of consolidation, with larger miners scooping up junior miners to compensate for their lack of fresh discoveries.
The number of deals in the gold sector this year is the highest since 2011, when the metal was trading north of $1,600 per ounce.
“What we’ll possibly see is consolidation in the industry as a result, whether that’s a large company taking over smaller ones, a number of smaller ones getting together, or even two or three large companies being merged,” Telfer told Bloomberg. “No CEO wants to run a shrinking company.”
This is good news for junior miners, which have taken off over the past year.
The ProShares Ultra Junior Miners ETF (NYSE: GDJJ) is up 127% this year — and that’s after a correction that knocked it from a peak of $152 per share in June to $58 today.
Some of our favorite juniors have risen drastically as well.
Midas Gold (OTC: MDRPF) is up 210% this year.
Midas has locked into a very lucrative find known as the Golden Meadows project. It's actually a cluster of three gold deposits in a friendly mining jurisdiction in Idaho. All told, Golden Meadows harbors 6–7 million ounces of gold, grading 1.6 grams per tonne.
The site also contains nearly 3 million ounces of silver.
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B2Bold Corp. (NYSE: BTG) is up 142%.
That’s a Vancouver-based gold producer with three operating mines (two in Nicaragua and one in the Philippines) and a strong portfolio of development and exploration assets in Namibia, Nicaragua, Mali, Burkina Faso, and Colombia.
For 2016, consolidated gold production at B2Gold is expected to increase to between 510,000 and 550,000 ounces, compared to 493,265 ounces produced in 2015. At the same time, consolidated cash operating costs are projected to decrease to $560–$595 per ounce.
And Pilot Gold (OTC: PLGTF), an early-stage gold/copper explorer/developer, is up 56%.
Pilot has established a reputation for "finding the sweet spot," with three major projects currently underway: Kinsley (Utah), Goldstrike (Nevada), and TV Tower (Turkey). The risk level in all three locations is considered low, with high potential for some plentiful and lucrative deposits.
But if you really want to know everything about the junior mining sector you should really sign up for Resource Stock Digest.
Gerardo Del Real knows a heck of a lot more about metals and mining than I do. And he covers the junior mining sector exclusively.
You can find out more about him here.
Jason Simpkins is a seven-year veteran of the financial publishing industry, where he's served as a reporter, analyst, investment strategist and prognosticator. He's written more than 1,000 articles pertaining to personal finance and macroeconomics. Simpkins also served as the chief investment analyst for a trading service that focused exclusively on high-flying energy stocks. For more on Jason, check out his editor's page.