Discover or decline: The choice facing the gold industry

The consolidation of the global gold mining industry has masked its stagnation over the past five years and it now urgently needs to make new discoveries, says Dr Mark Bristow, chief executive of Randgold Resources.

Bristow says the industry's combined exploration expenditure peaked in 1997 and since then has dropped off sharply to less than a third of that level. Over the same period, the number of active gold mining companies has shrunk by some 15%. The new gold supply has grown by a mere 1.5% year on year since 1991, before making any deductions for hedging.

'There has in effect been a steady decline in production, which has been masked by the frenzy of consolidation in the industry over the past few years. However, while consolidation can preserve or unlock existing value, the only way to create new value is through exploration, development and innovation. Quite simply, as an industry, we need to find more new viable gold mines,'says Bristow.

The London and Nasdaq listed Randgold Resources is one of the few gold companies that has continued to invest substantially in exploration - and as a result of this strategy, discovered the Morila deposit in Mali and developed it into one of the world's top 10 gold mines, which in 2002 topped the million-ounce-per year production mark. The company has also built up extensive groundholdings and an inventory of quality gold prospects and projects in Africa.

'It is easy but unwise for producers to allow themselves to be seduced by the whims and fashions of a market that is notoriously volatile. Randgold Resources'success in creating value and delivering returns, on the other hand, is based on a coherent, consistently applied strategy of generating organic growth opportunities through an aggressive exploration programme coupled with shrewd risk evaluation,'Bristow said.

The western, central and eastern regions of Africa, where Randgold Resources has a major footprint, remains one of the world's most attractive gold exploration areas. Other high-potential zones, according to Bristow, are the western seaboard of South America, central Europe and, to the east, Indonesia and the Pacific Rim.

'If you want to increase your chances of a discovery, you have to go to areas that are prospective but well off the beaten track. The difficulty of accessing these areas, and the shortage of information about them, pose a real challenge to explorers. It is these same barriers to entry, however, that also make such areas potentially so rewarding to the knowledgeable and intrepid explorer,'he says. (*)