gold set to become even scarcer

Gold set to become even scarcer
By Rebecca Bream in London
Published: April 2 2006 20:21 | Last updated: April 2 2006 20:21

Bobby Godsell, chief executive of AngloGold Ashanti, predicted that worldwide gold production would stagnate, then fall in the coming years as large deposits of the precious metal become scarce.


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He said this would support the rally in the gold price, which last week hit a 25-year high of $588 per ounce.

The South African company, the world’s third biggest gold producer, mined 6.2m ounces of gold in 2005 but expects production to be lower this year, between 5.8m and 6.1m ounces, and then increase again in 2007 as new projects come on stream.

But in an interview with the FT, Mr Godsell warned that the gold industry will find it hard to keep up current levels of production. “All of the gold majors are finding it difficult to replace their reserves. New mine production will be flat-to-declining.”

RBC Capital Markets in London estimated that total gold production would rise slightly in 2006 and 2007, be flat in 2008 and start to fall in 2009. “There hasn’t been a big gold discovery for years,” said an analyst.

Mr Godsell said: “Gold is precious because it is scarce. Twenty years ago the majority of gold was produced by four old world countries: South Africa, Australia, Canada and the US. In the future it will be anything but. Tomorrow’s ounces of gold are going to be in interesting countries.”

AngloGold, which has expanded away from its base in South Africa as the country’s reserves of gold dwindle, is focusing on exploration in high potential but high risk areas such as the Democratic Republic of Congo, Colombia, Mongolia and Russia.

The high gold price has stimulated exploration activity by smaller mining companies, but Mr Godsell is sceptical about whether this will lead to increased gold supplies as rising costs threaten to kill off these projects. “The juniors have a better track record of finding ore bodies [than major gold companies], but to build a mine now you are talking about $500m for an open pit and at least $1bn for an underground mine,” he said.

Speculation that AngloGold would try to grow by takeover has increased since Anglo American, a UK-listed mining group, said it would cut its stake in the company from 51 per cent to 41 per cent. After Anglo American cedes direct control AngloGold would be “more fleet of foot” in making decisions on mergers and acquisitions, said Mr Godsell. “We look at everything and we have exploratory discussions, but we have no announceable deals.”

Rumours have suggested AngloGold may buy Gold Fields of South Africa, the fourth biggest gold miner, to form the world’s largest gold company. “There are some synergies, we both have mines in South Africa, Ghana and Australia. If we could put together a good deal that would be in the interests of shareholders that would be a great thing to do.”

But he added: “Most M&A activity is value-destructive and this may be particularly true in the gold sector as gold shares trade at a premium.”


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