Industry Trend Analysis - Gold Growth To Suffer Under Environmental Spotlight - MAY 2016

BMI View: Chile ' s gold sector will experience limited production growth due to strengthening environmental regulations and a weak price environment over our forecast period to 2020 .

We have revised down Chile's gold production growth forecast, as persistently weak prices, tightening environmental regulations and challenging operational conditions will delay projects and curb growth. We now forecast Chile's gold output to contract by 1.0% in 2016, down from a previous growth rate of 2.0%. We expect the country's gold sector to edge higher 1.38 million ounces (moz) in 2016 to 1.42moz by 2020, averaging 0.6% annual growth. This signals a slight slow-down after an annual average of 2.2% growth over the previous four year period.

Chile's environmental regulations will increasingly target mines, as water shortages in particular continue to heighten tension between local communities and extractive operations. For instance, in March, a local environmental regulatory body demanded that Kinross Gold close water wells on which the Maricunga gold mine depends. The firm will challenge the order on the grounds that a drought in the Atacama region led to water scarcity, rather than the firm's operations. If the Environmental Tribunal in Santiago upholds the decision, the Maricunga mine will not be able to operate for the foreseeable future. Furthermore, Barrick Gold now faces a class action lawsuit over the Pascua Lama project, stalled since 2013 when Chile fined the firm USD16.0mn for environmental violations related to water management.

Gold Sector Losing To Green Movement & Greenback
Chile - Gold Mine Production (LHS, moz) & Global Gold Price (RHS, USD/oz)
e/f = BMI estimate/forecast. Source: BMI, USGS

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