Crisis in the gold sector far from over: report

A slight recovery in commodity prices mid-year helped the industry’s aggregate market capitalization increase in July and August, reaching the highest point in five months, shows SNL Metals Economics Group’s latest report.

Despite mining market cap reaching $1.48 trillion by the end of August, it was still lower than any month in 2012. In fact, SNL’s Pipeline Activity Index (PAI), a barometer of drilling, mergers and exploration activities in the mining industry, dropped to the second lowest level in its history last month.

The plunge suggests that ongoing financing pressures on the junior exploration sector, budget cuts by major and intermediate producers, and unfavourable commodity outlooks, continue to severely affect grassroots exploration activity.

number of significant drill results announced in July-AugustThe number of significant drill results announced in July-August, particularly in the gold sector, fell more than 30% compared to the same period last year. No wonder SNL is not bullish about the short-term outlook of exploration activities:

"Drilling activity typically slows in the months leading up to the holiday season, and given the ongoing difficulty of obtaining financing, we expect this year’s decline to begin sooner than in previous years," it says in the report.

The group reported earlier this month that, despite gold exploration budget hit an all-time high in 2012, only half the total resources discovered since 1990 has been converted into reserves or put into production to date.

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