|Mar 12, 2007 6:25 pm
||Global Gold Production on the Decline
|| Global Gold Production on the Decline
By Jon A. Nones
08 Mar 2007 at 12:39 PM GMT-05:00
St. LOUIS (ResourceInvestor.com) -- Yesterday, South Africa’s Chamber of Mines reported that gold output fell last year to 275 tonnes, down 8% from 2005. Some sources say South Africa’s decline in gold production is now becoming a global affair, as seen in leading gold producing countries.
According to stats from GoldSheets.com, U.S. gold output for last year declined from 262 tonnes to 260 tonnes. Australian production fell to 251 tonnes from 263 tonnes. Gold produced in Peru declined to 203 tonnes from 207 tonnes. Russian gold output dropped 4 tonnes in 2006 to152 tonnes, while Canada fell from 118 tonnes to 104 tonnes.
“Production in Australia, South Africa, Canada and Peru is expected to continue slumping in the next few years, probably stabilizing in 2010, but never reaching their peak levels from years past,” said Neal R. Ryan, Vice President and Director of Economic Research for Blanchard and Company, Inc.
Ryan said global production for gold peaked in 2001 at 2,604 tonnes or 83.7 million ounces. With 2006 production expected to come in at 2,467 tonnes, annual gold mining supply will have fallen 4.4 million ounces in five years. Since 2001, prices have almost tripled from $260/oz to $650/oz.
“So much for supply/demand economists that always say higher prices equal more production,” added Ryan.
However, Dennis Gartman, editor of the Gartman Letter, said last year's decline in gold production was the very logical result of high and rising gold prices. As gold moved higher, lower grades of gold ore are mined, he said.
“The Chamber of Mines in South Africa said that its members reported a 1.5% increase in tonnes of ore mined, but also reported a 9.3% decrease in the average grade mined,” he added.
Further still, the Chamber noted that the cost of mining gold rose by substantially more than inflation, with the total production cost of mining a kilogram of gold, before capital expenditure, rising 11.9% year-on-year.
“Mining gold is not an inexpensive venture! Thankfully, it is a bull market,” said Gartman.
China actually expanded production from 224 tonnes in 2005 to 240 tonnes last year, according to GFMS.
“Chinese mine production is ramping up fairly quickly, but that too has only so much it can increase, while the other major producing countries continue their downdraft,” said Ryan.
Global annual supply is generally considered to be about 100 million ounces, according to stats from the World Gold Council.
“So just from mine production, we're talking about 4.4% decrease in supply ... add the potential of central bank sales being 6-8 million ounces short this year,” Ryan added.
Last year, central banks consistent with the Central Bank Gold Agreement (CBGA) of 27 September 2004 ended the year well under the 500-tonne quota. Although sources differ on how much was sold, RI has it at about 370 tonnes.
So far this year, CBGA banks have sold about 110 tonnes. At the current rate of sales of about 22 tonnes per month, central banks are on pace to end the year around 230 tonnes short of the 500-tonne quota, and would have to sell about 55 tonnes per month here on out to make up the difference.
Ryan said there is potential central bank purchases around 2-3 million ounces, should current Russian bank and other third tier bank buying continue.
He said, “we’re looking at a combined impact of 12-15 million ounces of supply being reduced from the market, 12%-15%.”
Gold futures are currently up $1.10 at $654/oz in New York.
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