On August 10th, Barrick Gold Chief Executive Officer Mark Bristow spoke with “Bloomberg Markets” about his company’s focus. Gold continues to bounce back after a major sell-off Tuesday that saw the metal fall more than $100. The price of the precious metal was up nearly $30 an ounce Thursday to $1,948.32 an ounce in afternoon trading. Declining reserves is something on the mind of most major mining companies, particularly in today’s rising price environment.
Declining Reserves in the Gold Sector
“Keep the relevance of being a large-cap company in the resource space. And you want to continue to replace the gold you mine. You’re going to have to get your head around the importance of copper coming with the gold.”
“Because we have to move to bigger and bigger deposits, which are then usually porphyry deposits, and they come with gold.”
For junior miners sitting on substantial resources that were perhaps not attractive, or not profitable at $1,200 or even $1,500 gold, the move to $2,000 may suddenly make their projects very attractive. Furthermore, companies with lower grades or by-products such as copper, often found in porphyry-style gold deposits, may quickly become takeover targets.
Where is the Price of Gold Heading?
Everyone wants to know where gold is heading from a price per ounce standpoint. The hosts wasted little time asking Bristow about his predictions. Barrick’s CEO responds,
“What happens when gold prices run-up like this is that paper money is at risk. And, of course, on top of that, you get a flight to safety.”
He continues that,
“You don’t have to be a rocket scientist to understand that, all this printing of money, is going to result in damage to those core global currencies. And the measure of that is an elevated gold price.”
Gold Heading to New Base Price
Finally, Bristow explains his belief that,
“We are expecting the gold price to settle at a new base.”
“We’re going to see lots of volatility over the next while.”
On the topic of declining reserves, Barrick’s 2Q Earnings highlights point to lower gold production, at 1.15 million ounces, or -15% year over year. A significant decline, despite copper production, increasing 24% year over year. While Barrick’s shares continue to perform well, it must be infuriating to see such a decline in gold production, while the price hits new all-time highs.
Lastly, Mark Bristow explains,
“We’ve seen a big improvement in our generalist investor, across the board. Even the big funds that own us. That’s not just anymore the precious metal fund. Its many other generalist funds within those big institutions.”
The gold market remains very small. If the generalist investor ever pours into the sector en masse, it could result in terrific price increases, particularly for junior miners. In the meantime, the reality of declining reserves will haunt large gold producers, until the capital raised in recent quarters results in new, major gold discoveries.