Sharp drop in prices after gold bull market sees large projects begin, but new work suspended...

 

GOLD'S bull market of the last decade has left a "legacy" of rising mine output, according to industry consultants MetalsFocus.

 

But the sharp drop in gold prices this year means the boost will prove "short lived", and output is set to start declining from 2015, the London-based consultancy concludes in its latest Precious Metals Weekly.

 

Canada's Detour Lake and the Dominican Republic's Pueblo Viejo, which came online since mid-2012, are now "ramping up to full capacity," says the report, and will add a further 20 tonnes each to annual gold mine output, currently around 2,700 tonnes worldwide after rising in the last two years of the gold bull market.

 

Three major new mines alone will now add a further 30 tonnes between them MetalsFocus goes on. And "over the last few months a number of significant projects conceived during the last gold bull market have entered production."

 

But curbing this rise, the "current trend" of cost-cutting by gold mining firms – who invested heavily in mergers and acquisitions during the bull market, only to see prices drop 30% in 2013 – leads MetalsFocus to expect "a period of secular decline" in global gold output from 2015.

 

As a case in point, the analysts cite October's decision by Barrick, the world's No.1 gold mining firm, to suspend work at its Pascua-Lama project on the border of Chile and Argentina. Environmental issues added to the falling gold price only worsened the rise in costs, now forecast at 180% from the initial estimates.

 

Barrick has already spent $5 billion on the site. "We will maintain our option to resume construction and finish the project," said CEO James Sokalsky last week. Barrick told analysts the move will cut $1bn from its 2014 expenditure. But it will also lose the 26 tonnes of annual gold production projected during the gold bull market for the first 5 years of Pascua Lama output, previously due to start in 2016.

 

Barrick's existing mines produced 56 tonnes of gold in the July-September quarter.

 

"Elsewhere," says MetalsFocus, "investment in the majority of feasibility and earlier stage projects has dried up as companies look to conserve cash."