In 2012 more gold was extracted from the Earth than ever before in history. And even with 2013’s anomalous gold panic devastating the mining industry, production is expected to rise for the fifth year in a row. The latest exploration cycle is no doubt bearing its fruit. And it’s fascinating to see the geographical trends of this harvest.
Gold’s 2000s bull market has prompted the miners to scour the world over in search the Ancient Metal of Kings. And over the course of this bull, they’ve indeed reached far and wide to find their glory. Now rather than only a small handful of countries responsible for the lion’s share of production, mine supply is truly a global affair.
Major producers from a decade ago are just not as significant anymore. Their pieces of the pie are getting smaller not only due to declines in their own production, but big increases from other countries. Former mid-range producers are now flexing their muscles as major players. And countries that had nary a commercial-scale mine not too long ago are now part of the field.
As recently as the mid-1990s the big three of South Africa, the United States, and Australia were collectively responsible for about half of global gold-mine production. Amazingly they are now responsible for less than a quarter (24% in 2012). And if the trends we’re seeing over the last several years continue, their share will continue to shrink. As you can see in the chart below, these aren’t your mother’s global gold-mining trends anymore.
Thanks to annual country-level production data provided by the US Geological Survey, we can gain valuable insights into global gold-mining trends. In this chart I display the data for the world’s top-dozen producers. First I show their raw 2012 volume in metric tons. And then I show their respective rates of growth and/or contraction over the course of gold’s secular bull.
Since these countries’ production totals are spread across such a wide spectrum, I indexed each of them to 100 beginning in 2001 in order to better capture and compare their trends on a single chart. If a country is at 125, its gold production is up 25% since 2001. If it’s at 75, its production is down 25% since 2001.
China: Gold’s big three (South Africa, the United States, and Australia) were the big three for a long time. No other country was even close to producing what each of these countries was pumping out. Another country was lurking in the shadows though. And in 2007 it would overtake the big three in one fell swoop.
China surged from #4 in 2006 to the top spot in 2007. And as you can see, it hasn’t looked back. Since 2001 China has doubled its production to 2012’s estimate of 370mt. It is now producing a staggering 120mt more than the next-closest producer. The Land of Gold sounds a lot more applicable these days than the Land of Dragons.
Interestingly the major source of China’s big increase in production is thousands of new smaller-scale mines. With labor and materials cheap, coupled with a generally lax regulatory system, it’s not too difficult to develop a mining operation in this country.
And we can expect China to continue with its sharp growth trajectory for some time to come. China is slowly opening up its vastly underexplored gold structures not only domestically, but internationally. Countless more domestically-owned smaller-scale mines will come online as gold’s price remains high. And foreign mining companies will no doubt push for the development of larger-scale operations.
Another thing going for China is it will never out-produce its demand. The Chinese people have a deep cultural affinity for gold, and its government has every incentive to shunt reserve capital into the physical metal. Not only did China internally consume the 370mt produced within its borders in 2012, it imported over 800mt of additional gold (via Hong Kong). And not one to pass up on bargain-basement prices, China is expected to surpass 1000mt of gold imports in 2013 (which should allow it to become the world’s largest consumer displacing India).
Australia: In 2001 Australia was responsible for 11% of the world’s gold production. But thanks to a 12% decline in its volume over the last 11 years, coupled with increases elsewhere, the current world #2 is now responsible for 9% of the global tally.
Australia has long been a gold behemoth. And its moderate bull-to-date decline is actually not that bad considering its slowdown in exploration spending and skyrocketing operating costs in recent years. In fact, Australian gold production has recovered nicely from its 2008 low of 215mt (up 16%), a level that had not been seen since the late 1980s.
Looking forward Australia will likely see further production declines due to a lack of sufficient planned development. As mines deplete and/or get shut down due to lower gold prices, there won’t be enough replacement to sustain the current levels. Australia may be able to stem this for a while as some of its larger mines shift to tapping higher grades in order to make profits, but this is only a short-term solution.
United States: At the turn of the century, the United States was responsible for about 14% of global gold production. Its spot as #2 producer behind South Africa was secure and unquestionable. But since its peak in 1998, the US has seen its production volume plummet. Not too long after this peak it got leapfrogged by Australia. And since 2001 production is down an alarming 31%, to a level not seen since 1988.
The US was still responsible for nearly 9% of total output in 2012. But the fact that production is off by a whopping 136mt from its peak sure speaks of structural issues with its gold-mining industry.
Nevada, by far the largest gold jurisdiction in the country, can shoulder much of the blame for this production decline. According to the USGS, US gold production is again down in 2013 (by 8% through H1). And this is directly attributable to lower grades being mined in Nevada. Thankfully the US does have a stout pipeline of large development-ready projects. Once these come online, the bleeding should stop.
Russia: Russia is another country that has seen impressive production growth over the course of gold’s bull market. Like China, Russia’s vast land mass had been subject to very little modern mineral exploration under the communist flag. And also like China, Russia has been found to host massive belts of gold mineralization.
Rising gold prices thus prompted a huge wave of development, which has led to a 34% increase in production since 2001. Over this span Russia has jumped three spots to become world #4. And if Russia and the US continue to trend at their respective bull-to-date growth/contraction rates, Russia is in line to secure #3 by 2014.
Again like China, Russia is a country that consumes nearly the entirety of its gold-mine production. And with the government actively increasing its gold reserves (recently cresting 1000mt) while also encouraging retail investment with the recent advent of this country’s first bullion-backed ETF, there’s a huge incentive to boost mine output in order to moderate imports.
South Africa: As recently as 1970 South Africa was responsible for over two-thirds of global gold production (nearly 1000mt). This country was a gold-mining juggernaut! But with the low-hanging fruit in the prolific Witwatersrand Basin picked over, it was only a matter of time before SA’s rate of production would tail off.
And tail off it has, to an extent that would’ve seemed unimaginable in South Africa’s heyday. Indeed newer discoveries have been fewer and farther between. And the miners have had to go deeper to wrest the gold from this country’s rich vein systems. But geological degradation has only been one piece of the puzzle in SA’s major gold-mining-industry struggles.
South Africa has been one big geopolitical nightmare for the mining companies. And the source of this nightmare is a greedy corrupt government that has seemingly lost control of its country. Among many things, SA has been dealing with currency issues, a major power crisis, and labor unrest that has made doing business in this country almost impossible.
When you combine less and more-difficult-to-access resources with geopolitical shenanigans, you’re obviously going to see production declines as time wears on. And South Africa’s rate of decline is death defying. Just since 2001 its output has fallen 57%! And at 170mt (SA’s lowest output in nearly a century), it’s producing less than a fifth of what it was in the 1970s.
South Africa went from being responsible for 67% of global mine production in 1970, to 15% in 2001, to only 6% in 2012. It’s hard to believe that in 2006 SA was still world #1. In only six years it has fallen to the #5 spot. And with production again way down in 2013, it is believed that Peru has already surpassed it. The SA gold-mining industry is in a death spiral, with no end in sight.
Peru: Peru is the lone South American representation in the top 12, although Brazil, Chile, and Argentina aren’t too far outside the bubble. In 2012 Peru came in at #6 with production of 165mt, which represents a 20% bull-to-date increase in production.
Interestingly Peru’s strategic trend is a tale of two alternate tactical trends. Peru started off gold’s bull as the world’s fastest-growing producer. By 2005 it had actually grown production by an impressive 50%, more than double the rate of growth than the next country. But since its 2005 high of 208mt, production has fallen by 21%.
Labor issues and slowing reserve renewal will likely lead to a continued decline in 2013 and beyond. But it shouldn’t be too severe a slide as Peru remains one of the top destinations for foreign mining companies due to its mining-friendly laws and one of the highest credit ratings in Latin America.
Canada: Canada is another major producer that has seen its production trend in the wrong direction over the course of gold’s bull market. Known as somewhat of a higher-cost producer towards the end of the 20th century, Canada saw a huge drop in exploration and development as gold’s price continued to fall. And this naturally eventually had an adverse effect on production, to the tune of a 36% drop since 2001.
Things are however looking up for the Great White North. Canada’s massive underexplored greenstone belts have seen a lot of activity over the last decade. And this activity has been quite fruitful, as there’s probably nowhere else in the world that’s seen more major gold discoveries than Canada over this time.
Some of these discoveries are finally filtering through to production. And since its 2010 low, volume is actually up by 12% (to its highest production level since 2006). Canada has a huge pipeline of development projects, and this should lead to a continued interim uptrend.
Indonesia: In 2001 Indonesia produced more gold than ever in its history. But as you can tell, the years following this apex have been anything but kind to its gold-mining industry. And “gold-mining industry” is somewhat misleading given the majority of Indonesia’s gold production is a byproduct of big copper mines. Regardless of the source though, a 43% drop in volume since 2001 is pretty bad.
Unfortunately the root to Indonesia’s problem is geopolitical in nature. Its government has been none too kind to foreign investment in the resource arena in recent years. And this is evidenced by a new law that is set to ban mineral-ore exports in 2014. The miners are of course up in arms, and I suspect their outcry and the potential economic impact will cause Indonesia to soften its stance. I don’t expect this country’s production trend to materially reverse anytime soon.
Uzbekistan: Several foreign miners have tried their hands at some of the massive Uzbek gold deposits, but to no avail. Sadly this country is tightly closed off to the outside world. And as far as the USGS can deduce, it generates a steady state of production in the neighbourhood of 80mt to 90mt per year. It could be a lot higher if Uzbekistan opened its borders to foreign investment.
Ghana: Ghana has been one of the great stories of this gold bull. It’s long been known that the rich gold belts in the southern part of this country had the potential to hold major deposits. And rather than being foolish about it, this poor nation’s democratically-elected government decided to leverage it for its own greater good. It thus proposed favourable mining code (which is a rarity in Africa) that has attracted huge international interest.
Countless foreign mining companies have descended on Ghana. And this country is now leading a major West African gold rush. Ghana has become Africa’s second-largest gold producer. And it has delivered a solid uptrend in production that has seen volume grow by 31%.
Ghana also has its share of problems though. A national power crisis and shortage of qualified labor has contributed to big increases in operating costs. And unfortunately the government has gotten a bit greedy by recently implementing a mining-tax increase, a big turn-off to foreign investment. These problems, along with cuts in production due to the lower gold prices, will likely lead to a production decline in 2013.
Mexico: Mexico’s growth trend has literally been off the chart. It started slow in the first few years of gold’s bull, but since 2005 production volume has skyrocketed. Flanking its famed Sierra Madre Occidental are massive precious-metals belts that have made it the world’s top silver producer, and now a major gold player.
Mexico’s 263% increase in production since 2001 has bumped it up nine spots in the global rankings, to #11. And it is certainly not done there. A massive exploration cycle has created a fantastic development pipeline that should lead to further growth in the years to come. Mexico is expected to pass Ghana in 2013 to crack the top ten. And within a few years it is even expected to give Canada a run for its money.
One thing that could adversely affect Mexican production down the road is the recent announcement of a big proposed increase to the mining royalty (to a whopping 7.5%). This trend of government greed is sadly permeating even the most stable mining-friendly countries. And when miners back away from investment as a result, it will end up being a net loss for these foolish governments. Mexico is getting huge backlash from this proposed royalty, so I hope it wisely backs down.
Papua New Guinea: There’s gold in them there islands! PNG is a relatively obscure country to be a gold powerhouse, but its numerous major deposits have long been amenable to profitable mining. Since 2001 production has been down a bit (-10%), but barring the shutdown of any of its large mines it should be stable in the 55mt to 65mt range.
Outside of the top 12 are the gold-mining industry’s “others”. And these others are responsible for 28% of global mine production. To show how much more diversified gold mining is today than in the past, consider that in 2001 this “other” category only accounted for about 19% of global production.
Thanks to gold’s record-high prices over the course of its bull, more and more countries are fighting for a greater piece of the gold-mining pie. The miners are indeed broadening their search patterns in hopes of finding more gold. And as the global gold-mining trends suggest, they are finding success outside of the usual spots.
The bottom line is it sure is fascinating to see global gold-mining trends at a time when production is at an all-time high. And what we find is that the face of the mining industry has radically changed since gold’s bull market kicked off in 2001.
No longer are the big three dominating supply. We now have a new leader at the top. And we’re finding a much-more-diversified industry than ever seen before. This diversification offers vast opportunities for savvy gold-stock investors to profit.
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