The thing is, we don’t know when that will be – and all the evidence indicates that we’re still a long way from finding out.
Take Newcrest’s Cadia East mine in Panuara, 20 kilometres south of Orange in NSW. The grade there is just 0.45 grams per tonne – more than two Statue of Liberty’s-worth per teaspoon – and yet the mine is one of the world’s most profitable, with costs of $US160 per ounce, which would deliver a margin of more than 90 per cent at current gold prices.
Two factors drive that. One is economies of scale: Cadia is one of the world’s top 10 gold mines measured by output. Since the dawn of the mining industry, grades of almost every mineral have been falling because, by definition, the highest-grade, most easily discovered resources are the ones that get exploited first. The growth of the sector has always depended upon better, higher-volume extraction technologies offsetting this fact.
The place where many of the highest-grade major gold deposits are still found, South Africa, is increasingly a backwater. That’s because it’s simply so difficult to extract ore from sweltering tunnels kilometres underground using hand-operated tools. By comparison, the immense blasting and dump-truck operations used to exploit lower-grade mines in Siberia, Oceania and Nevada are far more efficient.
The other factor is that most gold doesn’t occur on its own. Indeed, the best deposits globally are porphyry, a mineral that’s also one of the world’s biggest sources of copper. The operator of the world’s biggest gold mine isn’t a gold miner at all but copper producer Freeport-McMoRan, whose Grasberg pit on the Indonesian side of New Guinea produced nearly twice as much gold in 2018 as its nearest rival, Polyus PJSC’s Olimpiada. At Newcrest’s Cadia, production costs are so low because for every ounce of gold that’s mined you get about 140 kilograms of copper, worth $US900 or so at current prices.
While the issues of mine depletion highlighted by Wood Mackenzie are real, high gold prices like those we’re seeing at the moment are exactly the circumstances that will encourage more exploration and development activity to make up the shortfall. Though people have been digging up gold for seven millennia, it’s constantly being discovered in the most unexpected places.
Mining of the yellow metal in Victoria all but ceased a century ago after the veins that drove its nation-building 19th-century gold rush were tapped out. Then in 2015 Kirkland Lake Gold discovered a new ore body near its uninspiring Fosterville mine site, and realised it was sitting on top of one of the world’s highest-grade deposits, causing its market capitalisation to grow nearly 100-fold in five years.
The same year, a unit of Zhaojin Mining discovered a new deposit two kilometres below the surface of the Bohai Sea off the coast of northeast China’s Shandong province. With some 212 metric tonnes of proven and probable reserves, it’s now one of the world’s largest gold deposits.
There’s no reason to think that trend is about to break. About half of the world’s gold has been mined since 1976, and if anything the pace is accelerating as grades fall. Worldwide, gold production is up by about a third over the past decade, far more than the 15 per cent increase in oil output. The best reason for investing in gold is still that it provides diversification to an investment portfolio – not that the world doesn’t have enough of it. One day, we may run out of gold. We’re a long, long way from that moment now.
Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies.