By Myra P. Saefong
Gold discoveries peaked in 2007 and production will soon follow, strengthening the value of the yellow metal and possibly fueling a boom in mergers and acquisitions in the gold-mining sector, according to Sprott Asset Management.
Discoveries of gold has collapses since then, “despite exploration budgets increasing by 250% from 2009 to 2012,” Sprott’s gold team said in a recent note.
They offered this image as an illustration of the “impending gold production cliff”:
Companies have only recently begun considering increases in exploration budgets on the back of the increased gold prices, but there’s a “lead time to transition a discovery to production,” it said. That is a key reason why “production is forecasted to decline over the next number of years.”
Gold futures GCQ6, +0.05% settled at $1,320.80 an ounce on Tuesday. They’re up over 24% year to date, after posting hefty declines over the last three years.
It would take an average of 10 to 12 years between a drill hole discovery and the “first gold pour,” the Sprott gold team said.
The gold team said that 2015 may end up being the peak global production year for gold, at about 95 million ounces, with output in 2024 expected to fall to 78 million ounces. On an annualized basis, the decline would be about 2.2% a year, it said.