In late 2009, the founder and CEO of Metals Economics Group, Michael Chender delivered a keynote address at the Mines & Money Conference in London where he spoke about the real statistics behind Gold and Base Metals exploration budgets, mergers and acquisitions, new technologies, discoveries, supply and demand dynamics and the future outlook for these metals. Attached below are the slides from his presentation.
A couple of days prior to his presentation, I was fortunate enough to get a chance to briefly ask Michael his thoughts on gold and copper.
With regards to gold, Michael opined:
Gold is unique in that it usually doesn’t respond to “fundamental” supply and demand. However, at the moment we may be witnessing a rare shift with big jumps in Central Bank buying and direct investment What is less obvious is the supply picture. Golf discovery rates have been falling off for decades, more is being produced yearly than is being found, and many of the the more promising areas to explore are in politically challenging countries. In addition, there has been tremendous inflation in the costs of developing new miner, largely based on the jump in energy prices in the past several years. At the same time, companies compete for investor interest based on their growth prospects. So that growth is becoming more and more expensive as poorer-quality deposits in more remote locations become the next generation of gold mines. And that means that a higher price will be necessary to make those mines economic. This is the long-term argument for high gold prices (producers are making significant margins at today’s prices, but weren’t a year to two ago.) The short-term one is of course concern about the underlying potential for inflation in the stimulus packages, downward pressure on the dollar, and general uncertainty about the economy.
As for his thoughts on copper:
Copper has been supported by Chinese buying, but also by strikes and technical problems at some producers. If the economy recovers at a reasonable pace and Chinese demand holds up, may observers expect it to continue in the current range next year, and for inventories to be substantially drawn down by 2012. Of course if we go into a double- dip reception, its another story.Copper suffers from similar long-term supply problems as gold. In the case of both metals, the drying up of credit for much of the past year, and in the case of copper, the price crash, have set back a number of mine development plans, thereby possibly exacerbating the longer-term availability of supply, and further supporting a bullish argument for the medium-term. However, I would caution that while history shows that “experts” do a lousy job as a group at forecasting future prices, the increased speed of communication has created a much more dynamic, networked economy than we had previously, which by its nature, is now even more unpredictable.
Mines and Money - The Real Industry Growth Picture in Gold and Copper
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