The last known gold deposit
In "The Goldwatcher", the book I co-wrote with John Katz, I expressed the importance of knowing which developmental stage of a mine’s lifecycle a project currently falls into, as this has a strong influence on stock performance. Investing, like life, is all about managing expectations.
Few new mines as companies deleverage
What all of this means is we’ll probably continue to see fewer and fewer major discoveries, or those that yield more than a million ounces. As you can see below, new gold discoveries peaked in 1995. Exploration spending peaked nearly 20 years later when the price per ounce averaged $1,600.
With gold now trading above $1,340 an ounce, up 26% for the year, many investors expect producers to begin lifting spending on exploration and production (or dividends).
Instead, most companies are in cost-cutting mode, using this opportunity to pay down debt and liquidate assets. According to Reuters, North American gold producers have managed to lower their debt levels 30% since late 2014.
Speaking to Mining.com, Newmont Mining CEO Gary Goldberg said his company, the second-largest gold producer in the world, is one of the few that’s currently building new mines—specifically the Merian project in Suriname and Long Canyon in Nevada. Because of the lack of new mines being built, he sees supply falling 7% between now and 2021.
Demand for the yellow metal, on the other hand, should remain strong during this period, helping to support prices even more.