In a wide ranging speech covering the dearth of gold discoveries in recent years and the case for a higher gold price, Pierre Lassonde, the chairman of Franco-Nevada, reiterated his call for mining companies to invest more in research in order to bring about a “paradigm shift” in mining and exploration technology.
Lassonde, speaking to a near capacity audience at the closing of AME BC’s Mineral Exploration Roundup in Vancouver, BC, was direct, even chastising in tone, as he outlined the crisis facing gold exploration.
The statistics, well circulated at numerous conferences in the past year or so especially, are sobering – perhaps a much needed tonic on the final night of a four-day long mineral exploration marathon.
To outline how bad it has become for gold exploration, Lassonde repeated some of the better known analyses on the success rate in gold exploration over the past few decades. The essence of the issue is this: in the past decade discoveries of multimillion ounce gold deposits – despite record exploration spending and a decade long bull run in the price of gold – have sloughed off to dangerously low levels.
To illustrate this, Lassonde turned to various statistics on gold finds that all tell a similar tale. In terms of 20 million ounce plus finds he noted that after gold’s bull run in the 1970s, the rate of discovery was high. There were 14 deposits of this magnitude found during the 1980s and then 11 during the 1990s.
But in the 2000s the rate fell to five.
And how many in the past two years? Zero. And this poor performance despite two seemingly favourable conditions for propelling a new discovery cycle, exploration spending and the price of gold, that have in the past helped push industry to make discoveries.
“It’s not happened this time,” Lassonde said.
Research, lack thereof in mining and exploration technologies, is the major issue today, Lassonde argued. As at past conferences Lassonde called on the mining sector to follow the example of the oil and gas industry where new technologies helped open up unconventional oil and gas deposits.
An acerbic Lassonde, lambasting the mining industry for underinvestment in research, rendered his thesis down to this:
“We need paradigm shift in exploration and exploration technology. Where is the equivalent of 3d geophysics that they’ve got in oil and gas? We haven’t got that in our business. Why not?
“Processing technologies. You look at the 70s and 80s; heap leaching came into being; pressure leaching came into being. Where are the new processing technologies? Mining technology. I mean we’ve got a bit of in situ uranium mining, but apart from that, nothing.
“Look at oil and gas, they’ve got fracking and they’ve got horizontal drilling, 4,000, 10,000 feet down and one mile out. Where are you guys?”
Later on, in answer to questions from the audience, Lassonde further caricatured the slow pace of technological advancement as pathetic.
“They’ve done it time and time again in the oil industry,” Lassonde said, “and where are we? We’re nowhere. I mean give me a new technology that has really shaken our world in the last 30 years. I mean we’re still using the same stupid drill rigs that we’ve used for 100 years. Maybe they’re a little faster. The oil is better. But there’s nothing dramatically new.
“And you look at cyanide leaching. It’s 120 years old. I mean it was a big improvement over mercury. But we haven’t found anything new. Why?”
Lassonde singled out low research spending as the main culprit holding back a needed technological revolution and he implored mining companies to pool more resources to lay the groundwork for the paradigm shift he sees as critical.
“We need better quality deposits and we need more of them,” Lassonde said speaking to a crowd filled with geologists and mining executives. “And that’s your job guys.”
Of course Lassonde also addressed the price of gold and where he thinks it is headed.
He reiterated his bullish stance that the price of gold is now stuck in a mid-cycle trough in an otherwise ongoing bull run. He predicted the gold price would see-saw for the next six to nine months but eventually make “another leg up.”
His rationale for an ongoing bull run in gold was predicated largely on coming inflation, which he sees as inevitable, and demand from China and India “the two elephants in the room” where consumer spending on gold has surged over the past decade.
Indeed he fingered China and India as the prime factor in the long term for the price of gold. “These two countries will determine more than anything else the price and the direction of the price of gold over the next 10 years,” he said.
As in the past Lassonde noted that the ratio between the Dow Jones Industrial Average and price of gold is still well above past peaks in commodity bull cycles. Now we’re somewhere around 8 or 9 to 1, he said, whereas in the past the ratio has reached equilibrium.
“The key point here is that at the top of every commodity bull cycle the gold price, the Dow to gold has gone down to one,” Lassonde said.
Thus there is a “long way to go” for the gold price, he said, and inflation, which he sees as looming on the horizon, will be the price driver in the next few years.
“In terms of gold itself, it’s very simple,” Lassonde said. “At the end of the day 80 percent of the price of gold is tied to the U.S. dollar and the printing of money. And you look at what’s happened in the last five years in terms of money printing and it’s absolutely obscene. You have the U.S. central banks printing money. The Fed. You have the British. You have the Europeans. You have now the Japanese central banks printing money. You’re not seeing any inflation. Now. Yet. But it will happen sometime in the future.”
While he didn’t make a firm prediction on the price of gold – despite some prodding to do so – he defined the main signal he expects will correlate with gold’s next lift off. “When you start to see inflation numbers coming up, you can be sure gold is going to be rocking. So that’s what I’m looking for.