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Gold majors sitting uncomfortably

Proactive's mining analyst, Dr Ryan Long, takes a look at the gold majors, who have got themselves into an uncomfortable position.

Piles of gold

The major gold producers are have got themselves into an uncomfortable position that is likely to require far-reaching action over the near to medium-term.

For this analysis, we examine data from ten of the largest global gold producers over a period of 13 years.

Proven and probable reserves for this peer group of ten of the largest global gold producers gradually increased between 2007 and 2011, reaching just over 700 million ounces of gold in 2011 (Figure 1- orange line). Since 2011, reserves have declined by a staggering 24%.

2P reserves

Figure 1 Total Proven and Probable Reserves of Gold Majors Since 2007

Source: Metals and Mining Research Corporation

If we look at the same data set but take out the two mega-deals completed by two of the peer group in 2019, so that we are effectively looking at the 2019 reserves on an organic basis (Figure 2 – blue line), we can see that reserves actually declined by an eye-watering 43% over the same seven-year period.

Figure 2: Total Proven and Probable Reserves of Gold Majors on Organic Basis Since 2007

Source: Metals and Mining Research Corporation

These low proven and probable reserves mean that at current production rates, the gold majors have an average visibility on the next twenty-two years of production, basis (Figure 3 – red line).

Figure 3: Average Visibility on production for Gold Majors Since 2007

Source: Metals and Mining Research Corporation

While this may seem like a significant amount of visibility, it is 25% below 2011 and 2012 levels, which was around twenty-nine years, and if we take out the acquisitions at the end of last year by two of the peer group, again to look at the data on an organic basis, the average visibility falls to just 19 years, 34% below 2011-2012 levels.

It is also worth noting that this is the average of ten companies; some of the gold miners in the peer group have visibilities on production levels of just nine years, which is a very low level.

Investors invest in these gold majors because of their long-term stability as a hedge against many risks; if the miners can’t demonstrate that they will be stable for the long-term investors will revaluate their investments.

These dwindling reserves could also be a contributing factor behind the fall in gold production from the major gold producers (Figure 4 – purple line). Since 2007, gold production from these 10 companies has fallen by three million ounces, which is 10% of 2007 production levels.

Figure 4: Gold Production per annum from Gold Majors Since 2007

Source: Metals and Mining Research Corporation

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