Why The Mining Industry Could Experience A Golden Year
Three decades of dwindling gold mine discoveries combined with increased industrial demand for gold across numerous industries has put a serious floor under the recent rise of the gold price.
Gold price was up 18.4 percent in 2019 and up about 44 percent since 2018 lows, with many analysts seeing gold going to $3,000 and as high as $10,000 per ounce. The impact of COVID-19 and a global market of near-zero interest rates paints a very bullish picture for gold prices, as well as safe haven demand. Three decades of underinvestment and over-regulation has resulted in a shortage of new economic discoveries, even as demand from new sources begins to inexorably devour more of finite global production.
Gold hasn't seen this kind of exciting price action since 2010 - an 18.4 percent uptick in U.S. dollar terms last year and close to a 44 percent increase since the recent $1202.44 low in September of 2018. A powerful blend of safe haven buying, highly accommodative (near zero) interest rate policy from the Fed through 2022, and the looming spectre of COVID-19 haunting the stock market has sent many investors stampeding back into the yellow metal.
The sudden surge in gold demand during the coronavirus pandemic has surprised many veteran industry analysts, with prices recently soaring to a seven-year-high despite key traditional offtake sources like jewelry seeing a big sales slump.
Jewelry normally accounts for over 52% of gold demand. However, World Gold Council (WGC) figures indicate a 65 percent year-on-year drop in the retail gold market within China, the world's largest jewelry maker, as well as a similar drop in the other major global jewelry market, India. The reality of the shutdown and the transparency of accumulating safe haven demand forces on the gold price are now cast in stark relief.
S&P Global Market Intelligence data from April indicated that some 20 mines in top producing countries were forced to close due to COVID-19 and ongoing economic uncertainty could continue to produce unprecedented levels of central bank stimulus around the globe.
At the same time, emerging applications for gold's unique properties continue to add new, broadening end markets across diverse sectors such as medicine, electronics, and high-tech industrial. Gold nanoparticles, for instance, are seeing increased use in everything from disease detection and treatment to enhanced efficiency solar cells and filtration systems.
Tiny particles and circuits may not seem like a big deal when we measure the global gold market by tonnage. But, with key applications in critical systems like municipal-scale water filtration and robust/high-performance consumer electronics components, the roughly 16 percent of global production currently consumed by these end markets is growing steadily every year.
Vale invests $150mn to extend life of Manitoba operations
Vale has announced a $150mn CAD investment to extend current mining activities in Thompson, Manitoba by 10 years while aggressive exploration drilling of known orebodies holds the promise of mining well past 2040.
Global energy transition is boosting the market for nickel
The Thompson Mine Expansion is a two-phase project. The announcement represents Phase 1 and includes critical infrastructure such as new ventilation raises and fans, increased backfill capacity and additional power distribution. The changes are forecast to improve current production by 30%.
“This is the largest single investment we have made in our Thompson operations in the past two decades,” said Mark Travers, Executive Vice-President for Base Metals with Vale. “It is significant news for our employees, for the Thompson community and for the Province of Manitoba.
“The global movement to electric vehicles, renewable energies and carbon reduction has shone a welcome spotlight on nickel – positioning the metal we mine as a key contributor to a greener future and boosting world demand. We are proud that Thompson can be part of that future and part of the low carbon solution.”
Vale continues drilling program at Manitoba
Coupled with today’s announcement, Vale is continuing an extensive drilling program to further define known orebodies and search for new mineralization.
“This $150mn investment is just one part of our ambitious Thompson turnaround story. It is an indicator of our confidence in a long future for the Thompson operations,” added Dino Otranto, Chief Operating Officer for Vale’s North Atlantic Base Metals operations.
“Active collaboration between our design team, technical services, USW Local 6166, and our entire Thompson workforce has delivered a safe, efficient and fit-for-purpose plan that will enable us to extract the Thompson nickel resources for many years to come.”
The Thompson orebody was first discovered in 1956 by Vale (then known as Inco) following the adoption of new exploration technology and the largest exploration program to-date in the company’s history. Mining of the Thompson orebody began in 1961.
“We see the lighting of a path forward to a sustainable and prosperous future for Vale Base Metals in Manitoba,” said Gary Annett, General Manager of Vale’s Manitoba Operations.