Industry Trend Analysis - Gold: New Projects To Drive Steady Production Growth - JAN 2018


BMI View: The global gold mining industry will experience steady production growth, supported by rising prices and improving operational costs over the coming years.

Global gold mine output growth will pick up over the coming quarters, supported by higher gold prices and solid project pipelines in key countries. We forecast global gold production to increase from 105moz in 2018 to 125moz by 2026, averaging 2.3% annual growth. While a steady pace of growth, this represents a slight deceleration in growth rate compared with the previous eight-year average of 3.1%. We expect gold prices to continue to head higher, averaging USD1,300/oz in 2018.

Top Countries Respond To Price Recovery
Select Countries - Gold Mine Production & Global Gold Production (moz)
e/f = BMI estimate/forecast. Source: National Sources, USGS, BMI

China

Major Chinese firms will ramp up investment in foreign gold mines, as the country's gold demand growth far outpaces that of production. Indeed, in 2016, the Asia Pacific region accounted for 44.7% of global gold mining merger and acquisition activity. Key deals over 2017 include Chinese conglomerate Fosun International USD890mn investment for an initial 10% stake in Russian gold producer Polyus Gold and Chinese firm Shandong Gold purchase of a 50% stake in the Veladero mine in Argentina from Barrick Gold for USD960mn. The firms will also work together on exploration activities in the area. Key deals in 2016 included state-owned China National Gold Group's USD300mn purchase of the Jinfeng gold mine from Eldorado Gold and Indonesian firm PT Amman Mineral International's USD1.3bn purchase of Newmont Mining's Indonesian assets, including the country's second largest copper-gold mine, Batu Hijau. In 2015, China set up a new USD16.0bn mining fund to develop gold mining projects along the planned Silk Road infrastructure route. We forecast China's gold mine production to stagnate over the coming years, at around 16.5moz. Over the first eight months of 2017, China's mined gold production declined by 8.9% y-o-y to 8.9moz.

New Projects Following Demand East
Gold Mines & Projects By Region (%)
Source: BMI Mines Database

Australia

Australia's gold production growth will improve as higher gold prices increase miners' profit margins. Additionally, a weaker Australian dollar compared to the US dollar will continue to boost the gold sector, leading to mine expansions and increased exploration activities by both top and junior miners. For example, Gascoyne Resources' Dalgaranga gold project remains on track for production to begin in Q218. Top gold miner Newmont Gold expects 2017 production at Australian operations to be 1.5-1.7moz, with total spending between USD205-240mn. We forecast Australia's gold output to increase from 10.5moz in 2018 to 13.2moz by 2026, averaging 3.1% annual growth and remaining the second largest global gold producer by a significant margin.

Project Pipeline Strong But Slow
Select Countries - Number Of Operational Gold Mines & New Projects
Note: Some projects include gold-copper deposits. Source: BMI

Russia

Russia's gold industry will see modest production growth, supported by a solid project pipeline and improving gold prices. While the country remains dominated by domestic miners as strict regulation of foreign investment prevents new entrants, partnerships will bolster project development. For instance, as of November 2017, Russia's state-owned Far East Development Fund will reportedly partner with Chinese-owned China National Gold Group to create a USD1.0bn mining fund targeting gold, precious metals and copper projects in Russia. In January, a joint-venture between state-owned Rostec Corp and Russia's largest gold mining firm, Polyus Gold, won the bid for the Sukhoi Log gold deposit in Irkutsk. The Russian government expects the deposit, which covers an estimated 28% of the country's total gold reserves, to yield 2.6-2.9moz of gold per annum with capital expenditures between RUB90-100bn. China National Gold Group will also develop the Chernogorskoye and Norilsk-1 deposits with domestic gold miner Russian Platinum. We forecast Russia's gold output to climb steadily, from 8.7moz in 2018 to 11.2moz by 2026.

Cost-Competitiveness To Remain Key
Gold Mining All-In Sustaining Costs (USD/oz)
Source: Bloomberg

United States

The US gold sector will see steady production growth, supported by rising prices and a solid project pipeline. Over the first eight months of 2017, the country's gold output increased by 15.0% y-o-y to 5.3moz. Additionally, federal deregulation under the Trump administration will prompt project development and ease environmental requirements. In Q217, major US miner Newmont Gold approved the Twin Creek underground expansion. The expansion will add 30-40koz of gold per annum for the first five years and cost between USD15-25mn. The firm's Long Canyon output will continue to ramp up, with total 2017 guidance of 130-170koz. Junior firms will also continue to develop projects in the US gold sector. We forecast the country to produce 6.9moz in 2018 and ramp up to 7.3moz by 2026.

Modest Growth Ahead Compared To Past Production Levels
Global Gold Price (USD/oz) & US Gold Production (moz)
e/f = BMI estimate/forecast. Source: Bloomberg, USGS, BMI

Downside Risks In SSA

While we hold a broadly positive outlook for gold production growth in SSA, including in top producers Ghana and South Africa, we highlight a number of regulatory and operational risks that could dent output and deter investment in the gold sectors. First, rampant illegal gold mining, which causes pollution and is often associated with violent criminal activity, could threaten legal operations and deter project development. In the DRC, the UN estimates that 98%, or USD409mn worth of informally mined gold, was illegally exported out of the country in 2013. In July 2017, an illegal gold mine in Ghana collapsed, killing 17 people. Additionally, changes to the mining codes of a number of SSA countries will pose downside risks to gold sectors ( see ' Regulations Shaking Up SSA Mining Landscape ' , July 24 2017). These reforms include a new mining code in South Africa, an ore export ban in Tanzania and a new mining code in the DRC.

Regulatory Uncertainty, Illegal Mining Could Dent Growth
Select Countries - Gold Mine Production Growth (% y-o-y)
e/f = BMI estimate/forecast. Source: BMI, USGS
Largest Gold Project By Capex
Country Mine Company Capex (USDmn) Notes
Note: Accurate as of August 2017. Source: BMI Mines Database
Mongolia Oyu Tolgoi Turquoise Hill Resources (66%) Government of Mongolia (34%) 6,200 Reserves: 3.6Moz; Production Guidance 2017: 140koz
Canada Galore Creek Teck Resources (50%) NovaGold Resources (50%) 5,200 Proved Reserves: 1.1Moz; Development of the project is currently on hold
Chile NuevaUnion Teck Resources (50%) GoldCorp (50%) 3,500 Estimated Production: 315koz/yr; Reserves: 4.5Moz
Mexico El Arco Southern Copper Corporation 3,000 Reserves - 9.1mnt; Estimated gold production - 105koz/yr; Currently under advanced exploration stage
Canada Casino Western Copper Corporation 2,460 Reserves: 8.9Moz; Mine Life: 22 years
Philippines King-King Nationwide Development Corporation - NADECOR (60%) St. Augustine Gold and Copper (40%) 2,040 Estimated Production: 236.2koz/yr; Reserves: 617.9mnt
Peru Cotabambas Panoro Minerals 1,530 Expected Production: 95.1koz/yr
Canada Courageous Lake Seabridge Gold 1,260 Proved Reserves: 1Moz
Canada Harper Creek Yellowhead Mining Inc 1,093 Proved and Probable Reserves - 0.7Moz
United States Pebble Northern Dynasty Minerals Ltd 750 Measured Resources: 5.9Moz
United States Arctic Trilogy Metals 718 Estimated Production: 29koz/yr; Indicated Resources: 0.6Moz
Ecuador Fruta del Norte Lundin Gold 669 Mineral Reserves - 4.82Moz, Expected first year of full production in 2021
Panama Cobre Panama First Quantum Minerals (80%) Korea Panama Mining Corporation (20%) 610 May 2017 - The mine is on track to begin commercial production in 2018; Proved Reserves: 1.1Moz
Chile Inca De Oro PanAust (66.8%) Codelco (33.2%) 600 Resources - 46mnt
Canada Cochenour GoldCorp 588 Measured & Indicated Resources: 0.29Moz
Canada Wellgreen Wellgreen Platinum 586 Measured and Indicated Resources - 5.5Moz
Canada Springpole First Mining Finance Corp 438 Indicated Resources - 4.4Moz; At full production, estimated average production - 217koz/yr
United States Back Forty Aquila Resources 407 Measured Resources - 0.5Moz
Australia Gruyere Gold Road Resources (50%) Gold Fields (50%) 400 Proved Reserves: 0.5Moz; Production start year: 2019
Ghana Subika Newmont Mining 380 The mine is expected to commence production by 2H18 with an 11-year mine life
Gold Production Forecasts (2015-2026)
2015 2016e 2017f 2018f 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f
e/f = BMI estimate/forecast. Source: National Sources, USGS, BMI
Global Global Gold Mine Production, moz 99.7 99.7 101.7 105.2 108.5 111.3 114.2 116.5 118.5 120.5 122.6 125.0
Global Global Gold Mine Production Volumes, % y-o-y 3.7 0.0 2.0 3.5 3.1 2.6 2.6 2.0 1.7 1.7 1.8 1.9
South Africa Gold Mine Production, moz 5.10 4.90 4.85 4.88 4.93 5.01 5.12 5.27 5.46 5.67 5.90 6.17
South Africa Gold Mine Production Volumes, % y-o-y 4.29 -3.92 -1.00 0.60 1.10 1.60 2.10 3.00 3.50 4.00 4.00 4.50
Australia Gold Mine Production, moz 9.81 9.52 10.00 10.50 11.13 11.46 11.81 12.16 12.41 12.65 12.91 13.16
Australia Gold Mine Production Volumes, % y-o-y 1.41 -2.88 5.00 5.00 6.00 3.00 3.00 3.00 2.00 2.00 2.00 2.00
China Gold Mine Production, moz 15.87 16.05 16.29 16.44 16.49 16.54 16.57 16.60 16.62 16.64 16.64 16.65
China Gold Mine Production Volumes, % y-o-y 9.68 1.13 1.50 0.90 0.30 0.30 0.20 0.20 0.10 0.10 0.05 0.05
Russia Gold Mine Production, moz 7.78 8.04 8.29 8.70 9.31 9.68 9.78 9.88 10.12 10.33 10.74 11.22
Russia Gold Mine Production Volumes, % y-o-y -2.02 3.40 3.00 5.00 7.00 4.00 1.00 1.00 2.50 2.00 4.00 4.50
Peru Gold Mine Production, moz 4.66 4.82 5.02 5.42 5.53 5.61 5.66 5.72 5.81 5.92 6.07 6.25
Peru Gold Mine Production Volumes, % y-o-y 3.60 3.45 4.00 8.00 2.00 1.50 1.00 1.00 1.50 2.00 2.50 3.00
Canada Gold Mine Production, moz 4.92 5.47 5.74 5.91 6.03 6.15 6.27 6.43 6.62 6.85 6.99 7.10
Canada Gold Mine Production Volumes, % y-o-y 0.59 11.12 5.00 3.00 2.00 2.00 2.00 2.50 3.00 3.50 2.00 1.50
United States Gold Mine Production, moz 6.88 6.72 6.85 6.92 6.99 7.06 7.17 7.31 7.24 7.17 7.24 7.35
United States Gold Mine Production Volumes, % y-o-y 1.93 -2.33 2.00 1.00 1.00 1.00 1.50 2.00 -1.00 -1.00 1.00 1.50