Gold Miners Reduce Exploration Spending Despite High Prices, Affecting Discovery Rates

What's Happening?

The gold mining sector is experiencing a decline in exploration spending despite a sustained rally in gold prices, according to an analysis by S&P Global. The report highlights that global exploration spending fell by 15% in 2023 and 7% in 2024, reversing an upward trend that began in 2017. This reduction in budgets is largely attributed to junior companies facing tighter financing conditions due to rising interest rates. Despite higher gold prices, these companies have not increased their spending. The share of grassroots or early-stage exploration within total budgets has also decreased significantly, dropping to 19% in 2024 from 50% in the mid-1990s. The analysis notes that the sector continues to rely on older discoveries for reserve growth, with no major discoveries occurring in the 2023-2024 period.

Why It's Important?

The decline in exploration spending and the reliance on older discoveries could have significant implications for the gold mining industry. Reduced exploration budgets may lead to fewer new discoveries, potentially affecting the long-term supply of gold. This situation could impact gold prices and the profitability of mining companies. The industry's focus on known assets rather than untested areas reflects a risk-averse approach, which may limit innovation and the discovery of new resources. As gold prices stabilize above $3,000 per ounce, there may be increased interest in exploration, but the reluctance to invest in untested areas could hinder discovery rates.

What's Next?

Looking ahead, the industry may see increased interest in exploration as gold prices remain high. However, S&P Global warns that even with increased spending, discovery rates may not improve due to the industry's focus on expanding known deposits rather than exploring new areas. This trend suggests that the industry may continue to face challenges in finding new major gold deposits, potentially affecting future supply and market dynamics.

Beyond the Headlines

The shift towards risk-averse exploration strategies raises questions about the long-term sustainability of the gold mining industry. As companies prioritize known assets, there may be ethical and environmental considerations regarding the impact of mining on existing sites. Additionally, the decline in grassroots exploration could affect the industry's ability to adapt to changing market conditions and technological advancements.