The S&P Global Market Intelligence recently released a review of the gold mining industry and the outlook doesn’t look too good for the industry segment. Here are the highlights of some of the challenges that the industry is currently facing.
Expanding Supply Will Depress Prices
It is predicted that the supply of gold is likely to grow rapidly. For example, Fitch Solutions forecasts that the global supply of gold will reach 3,770 tons. This is an increase of more than 25% of the current supply, and that increase is expected by 2029.
Gold prices recently peaked at $2,000 an ounce, and analysts don’t see the price going any higher given the expected spike in supply. Actually, a price drop is logical given the forces of demand and supply.
Too Few Major Discoveries
S&P analysts reveal that they identified 278 gold deposits that qualified as major discoveries in the years 1990-2019. However, none of those discoveries took place within the past three years, and only 25 of those major discoveries were recorded in the years 2010-2019.
Why is this a problem for the industry? As aging mines are decommissioned, new ones need to be brought on board to replace the old ones in order to sustain the growth of the industry. If no major discoveries are being made of late, then the future of the sector is bleak at best.
Rising Operational Costs
When the novel coronavirus pandemic spread rapidly across the world, the mining industry was especially hit since operations nearly ground to a halt at all sites. However, as the pandemic shows no sign of ending soon, mining operations have slowly started to resume, albeit with new cost factors to bear.
The relevant mining safety measures intended to protect employees from exposure to the virus have increased the costs of mining operations, and those costs are a big threat given the outlook which indicates that gold prices are unlikely to rise in the near future due to an expected rise in supply. Mining companies, such as GoldHaven Resources Corp. (CSE: GOH) (OTCQB: ATUMF) must therefore find ways to absorb those additional costs and turn a profit.
Limited Greenfield Exploration
The past years have seen a lot of mining companies shift their attention away from greenfield exploration aimed at finding new mineral deposits. Instead, these companies opted to use mergers and acquisitions of known gold-bearing sites.
While this strategy is a good one in the short term for companies which are feeling the pressure of growing investor returns, it is a bad move for the long-term sustainability of the sector. It is therefore no wonder that analysts report that no new major gold deposit discoveries have been made in recent years, and this should worry the sector.
How the gold mining sector responds to these challenges will determine whether the post-COVID period will be one of growth in the industry or a major fallout will be witnessed.
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