Gold Production Cliff

In case you were looking for more cliffs, the next big one is expected to be a gold production cliff that will become apparent sometime around 2017.

According to the Financial Post, National Bank Financial analysts believe that a sharp drop in production will occur, affecting senior gold miners, around that year. Reasoning for the projected drop-off in production is simple enough in itself: not enough new large deposits have been uncovered to keep up the present rates of production indefinitely.

Moreover, we’re already seeing numerous projects being shelved or delayed as the pressures in cost and scale of production begin to mount slowly.

The Financial Post quotes part of an analysis from Steve Parsons, Paolo Lostritto, and Shane Nagle:

“We contend that [constrained production] is already reflected in the shares of these companies, not because the issue is well understood, but because investors have simply responded to the side effects: capex pressures, project delays and eroding margins,” they wrote in a note.

It’s worth noting that despite gold enjoying a very strong run for the past few years, most of the world’s big gold producers have reported a steady decline in cash flow. Of course, that can only end in even higher prices.

Nevertheless, it seems clear that at this point we’re in a position where, unless really big gold deposits are discovered in the next few months or years, a production drop-off is almost inevitable.

To get a clearer idea of things, consider Mining.com’s statement that in the past five years, just two “supergiant” discoveries of gold deposits have been made. And in the past two years, that number has fallen to zero. Meanwhile, between the 1970s and the '90s, such discoveries were occurring with far more regularity.

As if quantity weren’t enough, consider the problems with quality of late. The grade of discovered ore has gone into decline. In 1950, the average grade was 12 grams per ton, Mining.com reports, but these days it’s more like 3 grams per ton, and that holds across Australia, the U.S., and Canada.

And of course, production costs have consistently risen over the past few years, despite investors turning en masse to gold as a safe haven in the face of worldwide economic uncertainties and continued stimulus action by central banks around the world.

Interestingly, National Bank Financial’s report singles out Nevada as a place that could get lucky during this gold production cliff that is to come.

What’s special about Nevada? Continued discoveries, for one, and higher commodity prices, which mean Nevada can afford to undertake more sustained exploration and output activities than most other places.

In short, as Mining.com reports, Nevada has been going against the grain of declining levels of discovery, and the hope is that this can be sustained for some time to come.

Newmont Mining Corp. (NYSE: NEM) provided some hope in 2012 when it stated that the Long Canyon project could have as much as three or four times the initially-estimated 2.6 million ounces of gold. Similarly, Barrick Gold Corp. (NYSE: ABX) declared last month that it had raised resource estimates at its Goldrush exploration project to twice that of early estimates, going from 7 million ounces to 14.1 million ounces, Mining.com reports.

And existing exploration projects have yet to fully be researched. As prices for gold continue to go up, it could lead to the more thorough exploitation of even low-grade ore, thus improving gold flo JUST SAYIN!!!!