Earlier this week, Financial Post released an article confirming that ‘peak gold’, or the gold ‘production cliff’, appears to be imminent.
According to numerous professional estimates, gold output will top out in 2015 or 2016 and then go into decline for several years at least. Using consensus figures, Goldcorp estimates that global production will drop six per cent in the next three years, and almost 18 per cent in the next nine years.
The following chart makes the point that 2015 is the year of ‘peak gold’:
The gold mining industry has seen a real boom between 2000 and 2011. However, as it goes with booms, it was followed by a true bust, one of epic proportions. The bear market that hit precious metals between 2012 and today, is one of the most brutal ones in history. The price of gold collapsed from $1,930 /oz in September 2011 to $1080 /oz on July 28th 2015.
Because of that, many gold miners had to reduce their output in the last few years.
Moreover, as Financial Post notes, there has been a shortage of new discoveries in the past decade, leaving the industry’s pipeline relatively bare. At the same time, companies have been deferring or canceling projects because the execution risk is just too high. That is due to soaring construction and operating costs, political risk, permitting challenges and numerous other factors.
That is positive for the small miners that have profitable gold projects, as well as producers in the mid-tier segment.