Every so often we take a look at relative importance of gold exploration relative to copper or other industrial minerals. According to according to Wilburn et al. (2013), gold exploration accounted for just under 50% of all exploration for non-fuel minerals commodities.
Today I've decided to look at something a little different. What is the relationship between money spent on gold exploration and the value of gold production? I've expressed the value of production as a multiple of the amount spent on gold exploration (data cribbed from the USGS and Minex Consulting - h/t Otto). I had to correct the expenditures for inflation as they were presented in 2012 dollars).
To interpret--the value of gold produced in 1980 was about 90x the amount spent on gold exploration. More recently, that number is about 20x.
This jibes with my overall impression--in the late '70s there wasn't a lot of exploration compared to the value of production--probably because South Africa was pretty much entrenched as the dominant gold producer and they had (and still have) a lot of gold. After the spike in 1980, exploration effort increased; but I think this was more of an investment phenomenon (more money available for investment) than a fear that the South African deposits were running out.
Even though the value of produced gold has ramped up tremendously, this has been approximately matched by exploration effort (if dollars spent can be equated to 'effort'). This again reflects the flood of money in the capital markets.
Here I have inverted the ratio and expressed it as a percentage (so exploration expenditures in 1997 were about 12% of global gold production).
Wow--that head and shoulders formation. If it hadn't bounced off the neckline in 2009, I would have said it was going to zero. And who knows--with investors as depressed as they are, it may well head in that direction (Minex does forecast a decline in exploration in the coming years, although the basis for their assertion is unclear).
Are we exploring enough? I haven't graphed discoveries, which hopefully mirror exploration effort, albeit with a lag. I wonder how much of the right shoulder is due to increased reporting costs as opposed to real exploration.
If this money is not all being wasted, then there should be a lot of discovery coming down the pipeline--enough to put at least another big peak in production (number V if you're counting) to the Muller and Frimmel historical production curve.
Today I've decided to look at something a little different. What is the relationship between money spent on gold exploration and the value of gold production? I've expressed the value of production as a multiple of the amount spent on gold exploration (data cribbed from the USGS and Minex Consulting - h/t Otto). I had to correct the expenditures for inflation as they were presented in 2012 dollars).
To interpret--the value of gold produced in 1980 was about 90x the amount spent on gold exploration. More recently, that number is about 20x.
This jibes with my overall impression--in the late '70s there wasn't a lot of exploration compared to the value of production--probably because South Africa was pretty much entrenched as the dominant gold producer and they had (and still have) a lot of gold. After the spike in 1980, exploration effort increased; but I think this was more of an investment phenomenon (more money available for investment) than a fear that the South African deposits were running out.
Even though the value of produced gold has ramped up tremendously, this has been approximately matched by exploration effort (if dollars spent can be equated to 'effort'). This again reflects the flood of money in the capital markets.
Here I have inverted the ratio and expressed it as a percentage (so exploration expenditures in 1997 were about 12% of global gold production).
Wow--that head and shoulders formation. If it hadn't bounced off the neckline in 2009, I would have said it was going to zero. And who knows--with investors as depressed as they are, it may well head in that direction (Minex does forecast a decline in exploration in the coming years, although the basis for their assertion is unclear).
Are we exploring enough? I haven't graphed discoveries, which hopefully mirror exploration effort, albeit with a lag. I wonder how much of the right shoulder is due to increased reporting costs as opposed to real exploration.
If this money is not all being wasted, then there should be a lot of discovery coming down the pipeline--enough to put at least another big peak in production (number V if you're counting) to the Muller and Frimmel historical production curve.
Problem. The "production value" gold was discovered decades ago. Grade of discovery is decreasing over time, apparently.
ReplyDeleteSo I betcha if you graph "annual gold exploration effort as a fraction of the value of gold that gets discovered", you'll see some diminishing returns. In fact I'm pretty sure either Kaiser or Cook already puts out that data.
Big possible problem worth digging into the data for an answer: does this "exploration money" include that being spent right now by China and Russia?
BTW, you might like reading Kaiser:
http://www.kaiserbottomfish.com/s/KaiserBlog.asp?ReportID=590158&_Type=Kaiser-Blog&_Title=Big-Picture-Perspectives-needed-to-assess-the-Wisdom-of-Resource-Sector-Bot...
Good one, thanks.
DeleteAs for whether money spent includes that spent by China and Russia, it depends what they report. It's as trustworthy as any other bit of government data.
You forgot about the Price of the yellow stuff. Multiply Price times Ounces produced and relate that to exploration investment. There is not enough gold to go around. We will be mining it rom the sewers and the oceans next.
ReplyDeletePrice is included in the production value. Production hasn't changed much since 2000, but price sure has. But what looked like a huge spike in exploration costs in the last ten years only matches the increase in value of the product.
ReplyDeleteMickeman... one of the problems with the Gold Exploration-Production equation is that no one is factoring in energy. As the gold mining industry's average ore grade fell below 3 g/t, the energy consumed goes up exponentially from here. (Gavin Mudd, Monash Univeristy, Australia)
ReplyDeleteFor example, (according to my research), AngloGold's diesel consumption per ounce of gold increased a whopping 31% from 2011 to 2012. Furthermore, in 2005, it only took AngloGold 8.1 gallons of diesel to produce an ounce of gold, however in 2012 they had to consume a staggering 23.8 gallons diesel to produce that same oz.
This gets compounded when the average price of a barrel of Brent crude increased four fold from $26 in 2004 to $110 today. The reason for that has to do with the peaking of Available Net Oil Exports in 2005 from 41 mbd to less than 35 in 2012. Of course, no one in the oil industry except a few sharp minds understands this principle.
This goes for all the large gold miners. Today, the gold industry is basically mining gold dust compared to the 1+ oz a ton gold back in the late 1800's. I'd image the gold prospectors in those days would laugh at a geologist today who found a high grade deposit of 10 g/t.
I believe we will see PEAK GOLD FOR GOOD here before the end of the decade as PEAK OIL reveals its ugly head. For those who have fallen for the SHALE ENERGY HYPE, I am sorry. According to Art Berman of Labyrinth Consulting Services out of Texas, none of the Shale Gas Companies are making any money whatsoever. This is due to the fact that they are spending 2-4 times CASH FLOW on their CAPEX to keep the Shale Gas Ponzi going.
Of course, if it wasn't for Wall Street making great fees on providing capital to the Shale Gas Industry, it would have imploded a few years ago.
Anyhow, energy will impact the precious metals, mining and the overall economy much more than the world currently realizes.
I research and write about this at the SRSrocco Report.
steve