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World Gold Council: Pilbara could reshape global gold supply

The World Gold Council said success in Western Australia's Pilbara region could dictate the course of production over at least the next three decades, amid warnings that global mine supply looks set to enter a period of "secular," or long-term, decline.

The WGC's latest report said that as gold exploration has been concentrated only in a handful of countries, the sector faces secular decline beyond the short-term, during which time current record levels of production can only be sustained for "the next few years."

The report said that while South Africa's Witwatersrand Basin has been responsible for about a third of the gold ever mined and still has significant resources left, the discovery of similar mineralization in the Pilbara, although very much in its infancy, "could prove to be a once-in-a-century discovery and so help to dictate the course of gold production over the next three or so decades."

Sydney-based Martin Place Securities Executive Chairman Barry Dawes told S&P Global Market Intelligence that the Pilbara conglomerate could potentially produce 1 million ounces per year.

"The potential of the Pilbara stuff is just enormous because we have over 350 kilometers of strike, which is where the conglomerates are at surface. A hole drilled by CRA in the mid-1980s found 1.5 meters at 11 g/t at 1700 meters," Dawes said. "That's 60 km down-dip from Purdy's Reward, which is where Novo Resources Corp. and Artemis Resources Ltd. are. So if this thing is 250 kilometers around the rim and it goes 60 kilometers down-dip, and if we're getting grades of 10[g/t] or 15 g/t, that's a hell of a lot of gold."

Additional uses for gold

WGC consultant Trevor Keel said in the report that gold compounds were "showing promise as a new class of antibiotic in early-phase clinical studies," and it was conceivable that gold-containing drugs would form part of humanity's defense against infection by 2048.

While these new applications for gold, combined with traditional investment demand in growing economies, present a significant opportunity for Australian gold mining companies to play a major role in future global supply chains, the WGC warned that "[new] discoveries have been scant, permitting timelines are long, capital costs have ballooned; [environmental, social and governance] requirements are becoming more challenging, operating costs have risen, and political risk has increased."

Given Australia has "already missed an opportunity" in the past decade, the Minerals Council of Australia used the WGC report in a May 18 statement to once again call for more favorable policies, particularly with the Northern Territory, recently flagging what the industry sees tougher regulation Queensland's comparatively high gold royalties and the expectation that Western Australia will try once again to increase its gold royalties.

Industry is surging ahead

Yet Perth-based CRU associate consultant Allan Trench, who is on the boards of gold companies Enterprise Metals Ltd.and Emmerson Resources Ltd., told S&P Global Market Intelligence that he has been "positively surprised" by how well Australia's gold industry has done over the last three to four years, having thought "it was going to struggle to hold 250 to 270 tonnes a year" given the declining amount of money being spent on exploration.

"We weren't seeing too many new discoveries other than the usual, Gruyere JV, which was always mentioned, but I wasn't seeing anything being replaced other than milking the old mines," Trench said.

In a conservative estimate, Dawes pegged Australia's overall gold output at 330 tonnes of annualized production by the end of 2018.

He also said he "wouldn't be surprised" if Australia's overall output is at 350 tonnes in two years' time, given Northern Star Resources Ltd.'s expansions at Jundee and Kundana and Saracen Mineral Holdings Ltd.'s work at its Karari underground mine.

He added that Newcrest Mining Ltd. has been a "real laggard," although he believes that Cadia will be running much better over the next couple of years. The miner has also been expanding Lake Cowal.

Dawes said that while there are declines at some of Australia's big mines, production growth is coming soon from Gold Road Resources Ltd., Blackham Resources Ltd.and Gascoyne Resources Ltd., while Dacian Gold Ltd. has already started producing. Kirkland Lake Gold Ltd., whose Fosterville project has 1.16 million ounces at 61.2 g/t in its Swan Zone, will effectively add another four to five tonnes to production.