Randgold warns of production slump

GLOBAL gold production was likely to peak in 2019 before coming down sharply, as mining companies continued to constrain spending on exploration and staying in business to repair their balance sheets and show profits, warned Randgold Resources CEO Mark Bristow.

The industry should be finding 90-million ounces of new gold each year to replace the roughly 88-million ounces that were mined each year, but it was barely managing 15-million ounces, he said on Monday.

Ideally, the industry should be finding 180-million ounces a year to give itself a sustainable future, but large new deposits are not being discovered.

Since the onset of the financial crisis in 2009, spending on exploration had peaked at nearly $6bn in 2012, but fell sharply to about $2bn in 2015, with annual total new gold finds obstinately at less than 20-million ounces so far this decade, Bristow said, citing research from SNL Metals & Mining.

His comments echo those of Gold Fields CEO Nick Holland, who warned in August that the global gold industry was facing a “hiatus” in output because of the lack of exploration expenditure in recent years and companies mining high-grade portions of their deposits, leaving the lowergrade areas for the future.

The chance of mergers and acquisitions at the prevailing gold price, which has soared by an unprecedented $300/oz in the past eight months, had reduced, but any downturn in the price would return pressure on many gold companies and throw up opportunities, Bristow said. If the gold price had not recovered the way it had so quickly, Randgold might have concluded a transaction with another big gold producer.

However, with the declining production profile for many gold companies, there could be deals on the cards, he said.

London-listed Randgold was wary of rushing into any deals, he said. “Our biggest risk at the moment is for management to be seduced into a bad deal that will screw up our DNA.”

Randgold has built itself through the discovery of gold deposits in West Africa and building profitable mines.

It also shares two mines with AngloGold Ashanti and recently walked away from a third venture at the troubled Obuasi gold mine in Ghana.