‘WE’RE RIGHT AT PEAK GOLD’: GOLD­CORP

But chair­man says in­dus­try has plenty of rea­sons to be op­ti­mistic

Edmonton Journal - - FINANCIAL POST - GABRIEL FRIED­MAN Fi­nan­cial Post gfried­man@na­tion­al­post.com

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.”

NORM BETTS/BLOOMBERG FILES

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.

PETER J. THOMP­SON

Gold­corp’s Ian Telfer be­lieves a shrink­ing rate of ma­jor dis­cov­er­ies doesn’t spell death for the in­dus­try due to its tenac­ity.

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