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| Updated: July 26,2004 |
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The major gold producers have cut back exploration expenditures
during the bad times, (low gold prices), but now that gold is
again in the high $300's to $400/ounce range, exploration has
still not received much funding. Companies have taken to mergers
and acquisition to increase their gold reserves. This, however,
is like Texaco purchasing Chevron, works for a little while,
but no new oil is being produced. And eventually, even though
they have a larger market share, demand will overcome supply
and then there will be another spike in prices, upward. These
sudden price moves spur exploration, however since it takes 5
or more years to bring a mine on line, once the deposit has
been proven, prices will remain high, until the new production
begins, and supply is again greater than demand.
The prices will fall, with the general principle, the steeper
the increase, the steeper the decline, and many mines will
shut down, causing some economic chaos in the gold industry.
The boom and bust cycle will again be alive and well. On the positive side, the annual production is not being consumed, yet, about 98% of gold produced is being consumed, leaving a annual surplus of about 2%. So, there is a little room for expanding use, without the requirement for more new reserves. There are still governments that will be selling gold in storage, which will also offset the requirement for new reserves, and is demand is healthy, will keep prices reasonably in a "OPEC" state. (Leaving ample profits for companies to thrive.) It would seem that a more prudent approach would be to fund exploration, at some sustainable level, identify new reserves, and have them in reserve, to bring into production, as the market conditions dictate. With the long lead time for a mine to actually begin production, this would require a little "crystal ball reading", but not nearly so much "future telling", if the exploration has to be done, then the mine developed for production. It can take a while to find a good economical deposit, especially in a climate where it is relatively stable, and suitable for a substantial investment that is required for a mine. This would lower the amplitude of the Boom and Bust curve, and make life a little more agreeable for the stockholders, the companies, their gold buying customers and those employed in the industry. But that's just my opinion. Charles Kubach Mine-Engineer.Com |
