May 01, 2018 | By Kevin Murphy
The following article is a snapshot of the Reserve Replacement Strategies: Major Gold Discoveries (1990-2017) publication by S&P Global Market Intelligence.
Although gold exploration budgets have fallen from a 10-year peak in 2012, spending on finding new gold ounces remains at historically high levels, with the US$54.3 billion allocated to gold exploration over the past decade almost 60% higher than the US$32.2 billion spent over the preceding 18-year period.
However, the increase in dollars spent has not yet resulted in more new discoveries or discovered ounces compared with the previous period: only 215.5 Moz of gold has been defined in 41 discoveries over the most recent 10 years, compared with 1,726 Moz in 222 discoveries in the preceding 18 years.
A downward trend
While the amount of gold discovered varies widely from year to year, it roughly follows the trend of annual spending on gold exploration — although in terms of return in gold discovered for exploration dollars spent, the 1990s were a more fruitful decade than the 2000s. Of the 263 major discoveries in the past 28 years, over half (139) were made in the 1990s and contain most of the discovered gold, S&P Global Market Intelligence data shows.
The industry downturn that began in 1998 (and lasted into the early 2000s) had a meaningful impact on both budgets and discoveries. By 2000, budgets were almost one-third of their 1997 peak, and discovery rates were declining.
The improving industry conditions that marked 2003 and most of 2008 resulted in rapidly increasing budgets and a corresponding ramp-up in new discoveries, although both the number and amount of contained gold would remain well below the levels seen in the mid-90s. While budgets peaked at US$4.9 billion in 2008, gold discoveries peaked in 2005-06 at 31 deposits. There has been a slow decline since 2006, with both the number of new discoveries and the amount of contained gold trending downwards. The decline possibly reflects a shift in exploration spending from riskier early-stage projects to focus on established assets.
Potential impacts on the long-term pipeline
While there is clearly a decline in discovered deposits and ounces, this will not impact the short-term project pipeline. As covered in our quarterly gold supply series, there are many quality assets being developed that will come online over the next several years, and far more in the pipeline that will be moving towards production within the next decade.
As shown by previous S&P Global Market Intelligence research into lead times for gold assets, it takes about 20 years for an asset to advance from first exploration (discovery) to production. This timeline implies that the reduced discovery rates of the last decade will limit the pool of projects that could come online in 15 to 20 years. Unless discovery rates begin an upswing in the near future, there could be a lack of quality assets available for development in the longer term.
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