‘We’re right at peak gold’: All the major deposits have been discovered

Ian Telfer, chairman of Goldcorp Inc., is the latest industry magnate to predict the world has reached “peak gold,” saying that from here on out, mine production will continue to 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,” said Telfer. “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.

Although 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, Telfer said that day that he remained “bullish” and predicted gold prices would surpass US$1,500 or US$1,600 per ounce before the end of the year.

Telfer made the comments to the Financial Post while waiting to board a flight from Vancouver to Toronto, where on Thursday he will be inducted into the Canadian Business Hall of Fame. In a wide-ranging interview, he discussed his personal career highlights, market trends and company strategy.

In addition to starting 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 people 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 raised by Telfer that the world has hit maximum gold production, or peak gold, is gaining popularity. Last September, the chairman of the World Gold Council, Randall Oliphant, 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 been increasing, albeit incrementally, from 2,744 metric tons in 2010 to 3,298 in 2017. Last year’s production represented less than a one per cent year over year increase from the 3,274 metric tons produced in 2016.

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Ryan Hanley, an analyst with Laurentian Bank Securities in Toronto, said that it’s hard to say whether the world has reached “peak gold.”

Low gold 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 decline over time. “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, around two-thirds of the estimated 190,000 tonnes of gold that existed in the world at the end of 2017 was mined after 1950.

Telfer said that he’s seen research that shows 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 analyse its exploration data.

Canadian miners are like cockroaches, man, you can’t kill us

Ian Telfer

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,” said Canepari. “More than a science, it’s an art to find the orebody.”

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 while such technology is helpful, 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 gold industry has plenty of reason for optimism, says Telfer. 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.”

 

Financial Post