Pinned straw:
Further to @Noddy74's question about exploration and capex in gold in today's meeting:
Here's a paper from late last year showing how gold mining activities haven't yet responded to the price signal (well for exploration anyway). I haven't found one for development capex yet, although I assume that must be up? With Au price having hit US$3,000 last week surely 2025 will see an uptick?
I've also added at the bottom (Figure 1) the 15 year trend of annual gold production from mines. Pretty flat over the last 7-8 years, which would indicate development capex is just at the sustaining level. I've also included a table (Figure 2) from various sources of the R/P (reserve to production) ratio, indictating reserve life. I understand that the R/P ratio for gold has been stable for many years, which means that new reserves are being booked pretty much to keep pace with mining output.
I'm no gold expert, so a question to @Bear77 is at what point does the high gold price start to send an activity signal that the industry acts on?
Brining that back to $XRF, this says that the major driver in the gold segment for $XRF is greater market penetration, and/or extending the product range, and/or having products that add more value to customers.
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Here is the S&P article summary courtesy of my BA.
Conclusion:
Despite record-high gold prices, exploration budgets fell in 2024 due to risk-averse strategies, funding challenges for junior miners, and industry consolidation. Future investment in gold exploration will depend on capital market conditions and continued price strength.
Key Findings:
- Gold exploration budgets declined by 7% in 2024, totaling $5.55 billion, despite record-high gold prices.
- Gold accounted for 45% of global exploration spending, the lowest share in a decade.
- The number of gold explorers dropped by 8% to 1,235, driven by industry consolidation and fewer junior explorers.
- Investors prioritized cost efficiency, leading to reduced allocations for grassroots projects and a shift towards safer investments in existing mines.
- Funding challenges in the junior sector resulted in a 21% decline in their budgets, while major companies increased their share of total gold exploration budgets to 55% ($3 billion+), a record high.
Major Trends and Challenges:
- Mergers & Acquisitions (M&A) played a role in reducing overall exploration budgets as companies focused on cost savings.
- Example: Newmont's acquisition of Newcrest Mining led to a $93M budget cut.
- Exception: Alamos Gold increased its budget after acquiring Argonaut Gold and Orford Mining.
- Shift towards mine-site work:
- Grassroots exploration budgets declined by 16% to $1.08 billion, hitting a record low share of 19%.
- Investment in near-mine exploration rose to 45%, while late-stage exploration dropped to 35%.
- Three major companies surpassed $300M in exploration budgets for the first time in 12 years:
- AngloGold Ashanti: $328M (focused on Nevada’s Silicon project).
- Barrick Gold: $322M (+37% YoY, heavy investment in Nevada).
- Agnico Eagle Mines: $302M (Canadian Malartic focus).
Regional Insights:
- Canada remained the top destination with a $1.3B budget (-9%), driven by late-stage projects.
- Latin America saw an 8% decline, though Mexico, Argentina, Chile, and Brazil each received $100M+.
- Australia’s gold budget fell 14% to $913M, ending a three-year streak of $1B+ allocations.
- Juniors’ spending dropped sharply (-$116M), while majors saw only a slight increase ($7M).
Future Outlook:
- Gold prices exceeded $2,700/oz in Q4 2024, with expectations for further increases.
- A positive market response to high gold prices could drive renewed exploration investment in 2025, especially if interest rates ease.
Figure 1 Gold Production from Mines
Figure 2: Resource:Production (R/P) Ratios for Selected Resources.
(Note: range of sources, so data might not be strictly comparable)
@mikebrisy my 2c, listening to C79 last call, was that they are seeing the much fabled "green shots' in terms of gold activity, but we shall see. Maybe the story here has been that costs have escalated a lot and impacted the margins on many miners over the last several years, and miners need extra confidence that gold is going higher and staying there to commit. so we have seen gold higher, so maybe that now adds up
i just listened to the meeting recording; the competitors VS mentioned were Thermo (monster), Avantar US$11b mcap, and Brooker? Don't know the last two. C79 and XRF are minnows.
Great posts today @mikebrisy. You asked: At what point does the high gold price start to send an activity signal that the industry acts on?
I think that happened last year, and continues to accelerate now, so we are seeing far more activity at the "explorer" and "developer" end of the market, plus a lot more M&A deals being announced in the gold sector, including the announcement today that SPR (Spartan Resources) have agreed to merge with Ramelius Resources (RMS, who I hold). This was certainly not a surprise, as RMS already held a bee's whisker below 20% of SPR and every gold bug and his dog thought that a tie-up between the two companies made perfect sense given the locations of Spartan's gold assets in relation to Ramelius' gold assets. Interesting however that RMS have announced this deal today after being sold down -21% last week from $2.80 to $2.20/share on the back of people being underwhelmed by their Mt Magnet Mine Plan (released on Tuesday 11th March). Perhaps Spartan were waiting for the RMS share price to look cheaper before agreeing to the merger.
Anyway, I believe that the increased drilling and testing across the gold sector in the past 12 months has been offset by a reduction in drilling and testing in other commodities, like nickel and lithium. In terms of gold testing expenditure specifically, I would have expected an increase because there has certainly been increased activity across the sector.
A few years ago we had companies morphing into lithium explorers or wanna-be-project-developers, and now we see companies like Premier1 Lithium (PLC) pivoting to become gold explorers - their SP closed up +18.18% today, I hold them also, as well as NMG who had a nice +13.33% rise today also. I disclosed those real-money purchases here last week. Other than those two, my sector exposure is all through gold producers. Those two are gold explorers and wanna-be project developers and they are actively drilling.
I don't think any of these companies are waiting for a higher gold price - they've been prioritising their drill targets and getting on with the exploration. And that includes the established producers - they're also busy drilling to find more gold and increase their reserves.
But I agree with your suggestion @mikebrisy that depletion of existing deposits as they are mined does offset most of the new discoveries that are made and the resource ounces that are being added. That's one reason why the price of gold has been so buoyant, because the collective amount of gold reserves that mining companies own has not been growing overall significantly compared to the depletion that results from gold production.
- "From 2025 onwards, production will steadily decrease due to depleting reserves, declining ore quality, and the closure of aging mines," warned Oliver Blagden, a gold and base metals analyst at CRU Consulting. “This will be the most gold we've ever mined in a single year, ever,” he stated.
Source: https://2024.minexeurasia.com/2024/12/24/global-gold-production-to-peak-in-2024-enter-long-term-decline/ [24-December-2024]
So, if Mr Blagden is correct there, production-related drilling and testing may decline as a percentage of overall drilling and testing across the sector, however I would still expect the increase in exploratory drilling and testing to more than offset that decline.