World gold output expected to keep falling

Barrick CEO, analysts see less new gold available

By Tom Stundza -- Purchasing, 4/30/2009 9:18:00 AM

Global mine production of gold will continue to decline in the face of rising demand--as the industry battles maturing mines, fewer new discoveries and longer times for project permitting and construction. That’s the view of Aaron Regent, CEO of Barrick Gold of Toronto, the world's biggest gold miner. And with less new supply ahead, he sees no gold price declines ahead.

“The gold industry needs to replace almost 100 million ounces of reserves per year, and clearly this has not been happening,” Regent told the company's annual shareholders meeting in Toronto.

Regent says that gold mine supply actually has been on a downward trend since 2001, despite a more than tripling of the gold price (from $271/oz that year to $904 so far this year), and this trend is likely to continue. This meshes with the views of analysts at GFMS and Barclays Capital, both in London, who expect mine output to drop for the fourth consecutive year in 2009.

Global gold mine production contracted almost 1.5% last year to 2,353 metric tons, according to a Barclays Capital report e-mailed to Purchasing.com. In a separate report, GFMS sees further 2% mining slippage to 2,302 metric tons in 2009.

New projects can take as long as 10 years to bring online, compared with just three to five years in the past, Regent says. Also, several gold projects around the world are being deferred because of ballooning capital costs and difficulties raising finance.

“The fact that it is getting harder to finance gold mines, it is clearly more difficult to find, permit and build the mines—they are more expensive and it takes longer—means that supply is likely to decline more than people think,” Barrick CFO Jamie Sokalsky tells analyst on a conference call.