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FOR a major gold mining company seeking to maintain production, there are no simple answers. Mergers and acquisitions are expensive, with targets demanding ever-higher premiums. Discovery through exploration, and then a greenfields mine development, is arguably tougher still.
Research by RMB Morgan Stanley shows that the largest gold mining companies have found it difficult to maintain their share of global production over time.
Despite blockbuster deals between major gold miners – such as Newmont’s $19.2bn takeover of Newcrest in 2023 – most consolidation has been among the mid-tier. The combined output of the top 10 producers has fallen from 34 to 37 million ounces a year in the early 2000s to about 28 million ounces today, the bank says. As a share of total mine supply, their contribution has fallen from 40 to 45% to 25% over the past 25 years.
The rise of mid-tier gold companies is conspicuous in West Africa, where Australian-listed Perseus Mining and West African Resources have become prominent gold producers. The two have guided output of up to 480,000 oz and 490,000 oz respectively in their current financial years.
West Africa is politically risky but geologically rich in gold. Yet it’s still hard to find new mines, says Ian Cockerill, CEO of Endeavour Mining, a London- and Toronto-listed miner.
“I think, as with many things, there’s a belief that the supply of gold is infinite – that there are hundreds of thousands of tons of gold sitting on the surface that could immediately flood the market if the price moved. That has to be challenged: it isn’t available,” he said at the FT Mining Summit earlier this month. “The supply of newly mined gold is really restricted. It has grown by less than 1% a year over the last few years. Since 2020, there have only been nine decent gold discoveries around the world.”
Endeavour, which produces about 1.2 million oz of gold a year, is one of the more successful companies at finding new gold. It spends more than $100m a year on exploration. Still, it’s hard work, and long lead times mean the gold industry will be poorly placed to provide new supply, especially if a shift to gold from other asset classes proves to be a long-term feature of global markets.
“You don’t need a significant shift in investment into that $1 trillion to get a massive increase in demand for gold,” says Cockerill, referring to the combined market value of gold mining companies globally. “Where is it going to come from? Because you can’t switch on supply that quickly. In most of the world, it takes about 15 or 16 years to go from discovery through to development.
“One of the key attractions of West Africa is that we’ve got the time from discovery to first gold pour down to eight years. At our new mine at Assafou [in eastern Côte d’Ivoire], we’re looking to get it down to seven years. That’s really quick. In the mining industry, that’s a matter of seconds.”
Finding new resources is not just the gold industry’s problem; it is a difficulty all miners face. In copper, mines are just as tough to permit and expensive to build. “Declining grades, a lack of shovel-ready projects following more than 10 years of underinvestment, 15- to 20-year development timelines, permitting complexity and capital intensity of more than $30,000 per ton for greenfield projects continue to constrain supply,” says Matt Greene, an analyst at Goldman Sachs. “The growth options across the miners are increasingly visible at higher prices, but so too are the increasing costs, capital intensity and execution risks.”
“I’ve been asked the question: what’s the biggest challenge of being the biggest gold mining company? The reality is we need to replace six million ounces of reserves [every year],” says Natascha Viljoen, CEO of Newmont, the world’s largest gold miner. “We know there’s an ongoing debate: do we buy, or do we build? It could be very easy to say we should do new deals.” Equally, committing to projects that don’t deliver a return on a risk-adjusted basis seems fruitless.
She calls for discipline and a re-examination of existing assets for organic growth potential. “We stepped out of our normal paradigm and challenged our assumptions, including around commodity prices. Across the 12 operations we run around the world, there wasn’t a single one where we didn’t find near-mine exploration opportunities – very targeted exploration. In all instances we’re seeing some very interesting potential that we hadn’t [identified].”
Says Cockerill: “Most other companies have backed off exploration. They feel it’s much easier to buy assets than to find them. Maybe there was a time when that was the case. That’s no longer the case.
“Don’t get me wrong: I’m certainly not calling peak gold or peak discovery. What I’m saying is that it’s becoming more and more difficult and more and more expensive.”