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Gold firms handed reserves warning Posted: Tue, 27 Jun 2006 [miningmx.com] -- CURRENT gold reserves owned by the world's top 22 gold mining companies are equal to 14 years of production at 2005 output of 46.5 million oz, according to new data scheduled to be published this month by Metals Economics Group (MEG). Speaking at the London Bullion Market Association, David Cox, vice-president of sales at MEG, said that in the last 11 years the world's gold majors have been good at replacing reserves but not so good at finding significant deposits. Nearly 836 million oz of reserves were replaced, including 316 million oz through acquisitions and 530 through exploration. Net of acquisitions, exploration proved up 125 million oz more during the period than were depleted through production. When gold prices were low, most of exploration reserves came from established projects and brownfields development, not from new discoveries. For the majors and the industry as a whole, the rate of finding new significant discoveries of more than 2.5 million oz had declined in each of the last eight years. "Only grassroots exploration can add new projects to the pipeline," he said. MEG's research will show that while the majority of the worldwide reserves in projects currently under construction and scheduled to start up in the next three and a half years are in Africa (27% of total). But only 9% of the total resources in feasibility and reserves development-stage projects are in that continent. However, the junior and intermediate mining companies are thriving reflecting the market's injection of cash to find and develop new resources to relieve the potential supply shortage. Financings of junior gold mining companies totalled $5.5bn in 2005 but in 2006, $5bn was raised in the first five months already, based on MEG's survey of debt and equity financings each greater than $2m. Cox said that total junior gold mining financing activities could top $9.5bn this year. There has been about $19bn invested in the junior gold mining sector during the last three-and-a-half years. "The treasuries of these companies has swelled," he said. That’s why the sudden weakness in the value of the South African currency against the dollar has thrown fresh attention on the potential for new economic reserves in the historically rich Witwatersrand Basin. Roger Baxter, senior economist for the Chamber of Mines of SA, said that restructured South African companies won’t rush back into expansionary strategies in their mines. However, the prospect of reserve depletion was a timely reminder that the Wits Basin was where some of the world’s long deposits yet remain. “They [South African gold producers] will be strategic about it and focus on brownfields expansions such as deepening projects,” Baxter said. The net effect, however, is that the decline in South African gold mine production could start to slow from about 2006. Output was down 13.4% in 2005 while in the first quarter of 2006, the output decline was lower at 10%. This was partly related to the improvement in the rand gold price. In the first quarter of 2005, at about R85,000/kg, some 86% of the South African gold mining industry was either lossmaking or marginal – mines with a profit to revenue ratio of less than 6%. At that point, the lossmaking and marginal industry employed about 107,000 people.Free news alerts: click here to subscribe
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