Goldcorp CEO Chuck Jeannes speaking at the company’s AGM in 2013 (Aaron Vincent Elkaim/CP)
Goldcorp president and CEO Chuck Jeannes made the case that the world is at “peak gold supply” and the price of the precious metal will hereafter be supported by steadily declining production. Jeannes was speaking at the Association for Mineral Exploration of B.C. Roundup, a mining industry conference in Vancouver on January 28.
“Our industry is never again going to mine as much gold as we do this year,” said Jeannes, who runs the world’s largest gold producer by market capitalization. The reasons for the dropoff include the declining grades of gold projects initiated during the decade of soaring gold prices to 2011, the dearth of financing since then (especially for juniors), and rising costs that have mostly negated the benefits of gold’s price appreciation to gold miners, in terms of earnings. Today, he notes, industry costs are finally coming down as a result of better cost discipline, such that he expects the sector will be able to generate strong returns even in a weak gold-price environment like we have today.
Jeannes also noted how the average time to bring a gold discovery into production is now around 20 years, and it just so happens the best year ever for gold discoveries, in terms of ounces of reserves, was 1995. “I don’t think it’s just coincidence that gold production is peaking today right about 20 years from when the discoveries peaked,” he said. “So if you look forward, without the new discoveries to offset the production declines, gold supply is going to be lower going forward.”
We still don’t know what demand will be, he acknowledged, but as it is, gold came out of 2014 basically flat, in contrast to most other commodities, which saw deep declines. “I believe there’s a floor under the gold price between $1,100 and $1,200,” Jeannes said, largely due to demand for physical gold in China whenever the price dips below that level.
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