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It's not that there is no gold left, but that all the “easy” gold has been found.

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The big worry faced by any investor in a mining company is reserve depletion. When the ore is all extracted, it's the end of the road for shareholders, unless new reserves can be found.

A new report from Metals Economics Group, the mining research outfit based in Halifax, suggests investors in the gold mining industry should be concerned that their prime asset – metal in the ground – is being depleted.

The firm looked at all the significant gold discoveries (defined as deposits containing at least two million ounces) made from 1997 to 2011, and tallied up what miners have found, compared with what they hauled out of the ground during the same period. It isn't a pretty picture for long term sustainability. There were 99 big discoveries cotanining a total of 743 million ounces. MEG estimates the discoveries only replaced 56 per cent of the estimated gold mined.

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The firm tracked the exploration activities of the world's 26 major gold producers and found that just 14 of them managed to make a major discovery between 1997 and 2011, accounting for about a quarter of all the reserves found.

The modest exploration success is the reason major miners have been pouncing on junior exploratation companies. Big firms are being forced by the pressure to expand reserves to make costly bids for the juniors.

MEG isn't worried that the world will run out of gold any time soon. The problem for the industry is that it is replacing current, high grade mines in stable locations, for development projects comprising of low-grade, riskier deposits. Long term, this isn't a good thing for the industry.

"Despite the apparent shortfall in new discoveries, the biggest reserves replacement challenge faced by the major producers and the industry as a whole is not that there is no gold left, but that all the "easy" gold has been found. Worldwide, the total gold in reserves and resources at development-stage projects is essentially equal to that in currently producing mines. However, with increasing risk of political, regulatory, and tax instability in many resource-rich nations, declining grades, rising costs, and dramatically longer development times, the amount of gold available for production in the near term is likely far less than has been found," MEG says.

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About the Author
Investment Reporter

Martin Mittelstaedt has had a varied reporting career at the Globe and Mail, covering politics, the environment and business. He opened up the Globe's New York bureau for the Report on Business, and has also been on the banking and capital markets beats. He's written extensively on investing themes. More

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