There's a huge increase in exploration spending (more than $8 billion ($8B) in 2011) but a serious lack of new discovery. There have been very few large, high-grade deposits discovered during the past few years.
Barrick Gold Corp. (ABX:TSX; ABX:NYSE) said at the Precious Metals Conference 2012 that of the "super giant" discoveries, those that are more than 20 million ounces (Moz), 18 were discovered in the 1900s. Fast-forward to the 1980s when 14 were discovered. In the 1990s, 11 were discovered. In the 2000s, only five were uncovered.
The number of annual gold discoveries of more than 5 Moz since 2007 is six in 2007, one in 2008, one in 2009, three in 2010 and one in 2011. None is producing yet. A lot of people who think that they're going to produce are in for a disappointment because of resource nationalism, permitting problems, environmental problems, lack of water, labor unrest and protests.
TGR: Assuming gold demand will continue to escalate due to macroeconomic pressures, will the price of gold continue to increase?
RM: Gold demand is still rising. Five-year average quarterly demand is rising, so that's correct.
TGR: What do you forecast for the 2013 gold price?
RM: That's a mug's game, trying to predict gold prices, but it'll be higher.
TGR: You believe the price of gold can only go up.
RM: That's right. Inflation, world events, diversificationgold does offer leverage. So do equities, or at least they will again. I'm not looking at huge mines with billions and billions of dollars in capex. I'm much more comfortable with the smaller mines with lower capex and under-control operating expenditures. I like the lowest-cost producers. That's where the money is going to be made over the next two years.
TGR: Canada, the U.S. and some places in Latin America are the preferred jurisdictions for risk reduction, infrastructure, rule of law and reliability of government.
RM: Absolutely. Look at the Muslim Brotherhood in Egypt canceling a nearly 20-year-old license for a mining company. In Madagascar, a DJ gets elected president and the first thing he wants to do is cancel permits and do a review. That's not happening in Canada, the U.S. or politically stable places like Greenland. There is enough risk in this business as it is without intentionally inviting more.
TGR: Given that backdrop, what are some companies you find interesting right now?
RM: Let's stick with soon-to-be producers or companies that are going to be very low-cost producers. They're all in geopolitically acceptable countries with superior management teams.
According to a July 2012 research report by Natural Resource Holdings, there are only 164 undeveloped gold deposits globally, with more than 1 Moz of gold in all categories, that are owned by non-major mining companies. The average grade of all these deposits is 0.66 grams per ton (g/t). Since we're mining +80 Moz a year, that makes these non-major-owned deposits quite valuable.