Metals Economics Group’s (MEG) new in-depth study—Strategies for Gold Reserves Replacement: The Costs of Finding and Acquiring Gold—concludes that the world’s largest gold producers have on average replaced 200% of their total production over the past 11 years at an average cost of $38/oz through a combination of acquisition and exploration. From 1995 to 2004, these 20 gold producers also increased their combined annual gold production by almost 70%, from about 25 Moz annually to 43 Moz, and still maintained a remaining production life of 14 years in reserves at 2005 production rates, with additional resources available.

However, while the top 20 major gold producers have been successful in adding to their reserve base, declining gold reserves replacement via exploration since 1997 may result in gold supply shortages in the long term. Especially evident from MEG’s analysis is that recently discovered large deposits of more than 2.5 Moz (of a size majors would consider developing) are not adequate to replace the majors’ gold production.

The discovery rate of major gold deposits has declined in each of the last eight years. For the 1992-2005 period, total world mine output of gold was 1,100 Moz, 1.8 times the new resourcesdiscovered in deposits larger than 2.5 Moz. To make the discrepancy even worse, by year-end 2005, only 52% of the discovered resources had been upgraded to reserves. Although we expect the decline in discoveries will be reversed?the majors have more than doubled their annual gold exploration budgets between 2001 and 2005 and the junior and intermediate companies increased their total exploration budgets by almost five times?the shortage of large, major-company-sized projects is likely to remain a critical issue for the largest gold producers.

MEG expects an average increase in mined gold production of about 3% annually from 2006 to 2010. This level of projected increase may be inflated further if current high gold prices prevail, and actual changes will of course depend on longer-term gold market factors. Historically, only about half of feasibility-stage projects reach production within ten years; we have therefore included 50% of the capacity of those projects. The net increase for the period is about 10 Moz of new capacity.

Strategies for Gold Reserves Replacement addresses key issues for growth strategies for the goldmining industry through the compilation of information on all aspects of the supply side of gold. The information presented in the sections of the study?Gold Production Pipeline, Acquisitions Activity, Exploration Spending, Major Discoveries, and Company Profiles?provides parameters for measuring the relative costs of various growth strategies for individual gold producing companies and the industry as a whole. The study is available in print copy and on the Internet from Metals Economics Group, Nova Scotia, Canada. Contact [email protected], or further information is available at www.metalseconomics.com