‘WE’RE RIGHT AT PEAK GOLD’: GOLDCORP
But chairman says industry has plenty of reasons to be optimistic
Ian Telfer, chairman of Goldcorp Inc., has joined the ranks of those who believe the industry has reached “peak gold,” saying that from here on out, mine production will decline because all the major deposits have been discovered.
“If I could give one sentence about the gold mining business … it’s that in my life, gold produced from mines has gone up pretty steadily for 40 years,” Telfer said in an interview. “Well, either this year it starts to go down, or next year it starts to go down, or it’s already going down.”
“We’re right at peak gold here,” he added.
Gold prices sank two per cent to US$1,289.86 per ounce this week, sliding below the psychologically significant US$1,300 mark for the first time this year, but Telfer said he remains “bullish” and predicts gold prices will surpass US$1,500 or US$1,600 per ounce before the end of the year.
Telfer, 72, made the comments as he waited to board a flight from Vancouver to Toronto, where on Thursday he will be inducted into the Canadian Business Hall of Fame. In the wide-ranging interview, he discussed his personal career highlights, market trends and company strategy.
In addition to starting Vancouver-based Goldcorp, one of the world’s largest gold mining companies, Telfer has racked up numerous other successes in mining during the past few decades. Many credit him with inventing the financial structure for streaming — the term for making an upfront payment for long-term rights to some or all of the revenues from a specific metal extracted from a mine.
The notion that the world has hit maximum gold production, or peak gold, is gaining popularity. In September, Randall Oliphant, chairman of the World Gold Council, made a similar prediction, echoing what some industry leaders have been saying for years.
According to the WGC, which advocates for the gold industry and compiles research, annual gold production from mines has increased, albeit incrementally, to 3,298 metric tonnes in 2017 from 2,744 in 2010. Last year’s production represented a less than oneper-cent year-over-year increase from the 3,274 metric tonnes produced in 2016.
Ryan Hanley, an analyst with Laurentian Bank Securities in Toronto, said it’s hard to say whether global gold production has peaked. Low prices in recent years have curtailed exploration among junior mining companies and the majors, he said.
“We really haven’t seen that much exploration in the past few years,” Hanley said. “It’s hard to say we’re running out of deposits, but it’s starting to look that way.”
At Goldcorp, production has dropped off since 2015 when it produced 3.4 million ounces of gold. It produced 2.8 million in 2016 and 2.5 million last year. Industry peers Barrick Gold Corp. and Newmont Mining Corp. have also experienced declines from their peak production earlier this century.
“They’re shrinking fast,” Telfer said about Barrick, which has predicted its gold production will eventually decline. “We’re sort of going sideways. Newmont’s going sideways.”
Telfer raised several possible reasons for why there are fewer discoveries. “Are we not looking for it? Are we bad at finding it? Or have we found it all? My answer is we found it all. At US$1,300 (per ounce of ) gold, we found it all. I don’t think there are any more mines out there, or nothing significant. And the exploration records indicate that.”
According to the WGC, about two-thirds of the estimated 190,000 metric tonnes of gold that existed in the world at the end of 2017 was mined after 1950.
Telfer said he’s seen research showing the average grade of new gold deposits — meaning the amount of gold per volume of earth extracted — is declining.
Goldcorp has taken a leading edge on applying some of the techniques used by the oil and gas industry to find new deposits. For instance, it is using IBM’s Watson, which uses machine learning algorithms to analyze its exploration data.
Luis Canepari, vice-president of technology at Goldcorp, said a large part of the process is about making its geologists more efficient at analyzing their data, and it could be “transformational.”
“There’s a lot of art in finding gold, and it’s a lot of experience,” Canepari said. “More than a science, it’s an art to find the ore body.”
He declined to give the total budget for the IBM Watson program but said it was a small percentage of the total drilling budget, “perhaps up to $10 million, but it’s not $50 million.”
Telfer says such technology is helpful, but overall the advances in exploration have been “extremely incremental.”
Still, he said the pressure to find new ore bodies will ultimately help gold miners, arguing a declining supply would translate into price increases. “I’m very bullish on the price of gold.”
But the industry still has plenty of reasons to be optimistic, Telfer said. Even if a shrinking rate of major discoveries means the industry itself has to shrink and consolidate, it would not spell anything like death for the industry. If anything, he said the gold mining industry is tenacious.
“Canadian miners are like cockroaches, man, you can’t kill us,” said Telfer. “These little companies, they find a way to borrow, lease their assets, buy back equipment, do this, do that, you just can’t kill them. They’re survivors.”
For many in the industry, who share his view about shrinking deposits, the answer is to look in lesser-explored regions of the world, including areas that have deterred miners in the past because they are geographically remote, politically unstable or where the governments want large portions of the revenues from a mine.
Telfer said Goldcorp was founded on the premise of staying in the Americas for two reasons: It is easier to manage operations that are confined to three time zones, and it’s a calculation of political risks.
“So far we haven’t deviated from that,” he said. “There’s still opportunities in those parts of the world, but as the commodity becomes scarcer, those are the kinds of decisions you have to make.”
Junior mining companies and the majors have scaled back exploration as a result of low gold prices in recent years. At Vancouver-based Goldcorp, production has dropped off since 2015.
Goldcorp’s Ian Telfer believes a shrinking rate of major discoveries doesn’t spell death for the industry due to its tenacity.