A gold industry obsessed with containing costs and minimizing risks will find itself at the edge of a cliff by 2020 as supply tightens, according to one of the most profitable producers.
Despite prices recovering from 2015 lows, the industry has been slow to reinvest in exploration or sustaining capital, Randgold Resources Ltd. Chief Executive Officer Mark Bristow said. Half of the gold coming out of the ground isn’t profitable to mine based on the true extraction costs, he said.
“The one thing this industry does very well is mine gold at a loss,” Bristow told analysts at a breakfast meeting in Toronto on Friday. The weakening outlook is being masked by a focus on all-in-sustaining costs rather than cash costs, he said.
While companies can lower AISC and boost earnings by reducing spending to sustain operations or tightening exploration budgets, the tactic erodes asset quality in the long run, the CEO said.
Similarly, severe damage has been done by high-grading, which shortens the life of a mine by focusing on the best quality ore. Since 2007, grades have dropped from an average of 2.5 grams a ton to about 1 gram, Bristow said.
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