The looming gold 'production cliff'

A global gold 'production cliff'  is coming in 2017, according to analysts at Canada's National Financial Bank.

Pierre Lassonde, chairman of Franco-Nevada Corporation – a leading gold royalty and stream company – also drove home this point yesterday at a mining conference in Vancouver, urging participants in the gold mining industry to address the coming production decline.

The gold supply-side story of the past decade is not encouraging. Big new deposits have been elusive. The number of "supergiant" discoveries has dwindled from two in the past five years to zero in the past two years. Comparing this to the impressive deposit discoveries of the 1970s and 1990s, one begins to get a sharper sense of the 'cliff'.

Quality, too, is an issue. Ore grades have tumbled from an average of 12 grams per tonne in 1950 to roughly 3 grams in Australia, Canada and the US. In some cases, cutoff grades have dipped to 1 gram per tonne. "The next cutoff," claimed Lassonde, "is dirt."

Add skyrocketing production costs to the mix, and the picture becomes even more grim.

Lassonde's call to arms includes a concerted, industry-wide boost in research and development. "Where is the new technology?," he asked.

Gold miners can buck the trend, according to Lassonde, by taking  a page out of the petroleum industry's playbook: by pooling investment for scientific studies and by more aggressively securing access to land.