CHINA: Running Out of Gold Mine Supply?

While Chinese gold mine production has increased substantially over the past decade, there is a threat that they may indeed be running out of economic gold mineable reserves in the future.  China has increased its gold production from less than 100 metric tonnes twenty years ago to a forecasted 430 mt (metric tons) in 2013.

The chart below from the article, “Chinese Gold Mining Exploding”, shows the steady as well as rapid increase of Chinese gold production:

China Annual Gold Mine Supply

As you can see from the graph, gold mine supply has increased at a much faster pace since 2008 when it was 288 mt compared to the forecasted 430 mt in 2013.  This is nearly a 50% increase during this time period (2008-2013) compared to the 44% increase from 2003-2008.

The Chinese are running through their gold mineable reserves faster than the rest of the world.  According to the USGS 2013 Gold Commodity Summary, the Chinese had 1,900 metric tons of gold reserves in 2012:

USGS 2013 Gold Summary

(NOTE:  the USGS and GFMS have different estimates of annual gold production)

The Chinese have approximately 5 years of gold mine reserves remaining if we figure 400 mt into 1,900 mt total reserve.  There hasn’t been an update on Chinese gold reserves on the USGS website for several years, but we can plainly see that Chinese present gold reserve life is much lower than other countries in the world.

Present Gold Reserve Mine Life Based on Present Annual Production:

China = 5 years

Australia = 30 years

United States = 13 years

Russia = 24 years

South Africa = 35 years

Peru = 13 years

Canada = 9 years

China has half the gold mine life reserves as does Canada, a fifth of Russia’s, a sixth of Australia’s and one-seventh that of South Africa.  So, the higher China grows its annual gold production, the quicker they will run through their gold mine reserves.

Jim Rickards stated on an interview a year or so ago, that the Chinese were mining gold as fast as they could to build up their central bank reserves, however at this pace their gold mineable reserves would run out by the end of the decade.  I tried to locate that interview and information, but could not.

The Chinese spend more on exploration than any other single country in the world.  This slide came from a presentation on the Junior Explorers in Canada by Richard Schodde, Managing Director of MinEx Consulting:

World Exploration Expenditures Break Down

China alone spent 14% of the total $30 billion on global exploration in 2012.  Schodde goes on to show that Canada spends most of its exploration amount on gold.  The presentation did not give a break-down on exploration data on other individual countries, but I would assume China is probably doing the very same thing.

Furthermore, the same presentation provides a graphic showing the top-tier global discoveries since 2000, including gold, base metals and uranium.  Here we can see that while China is included as one of the top ten hot spots for discoveries in the world, its gold discoveries are much less in comparison to other countries and regions that have a much lower annual mine supply.

Area of Top Tier Gold Deposits

Basically, China is burning through its gold mineable reserves as fast as it can so it will have as much gold in its central bank vaults when the world finally goes back to some sort of gold-backed monetary system.

We may not have the actual data on China’s remaining mineable gold reserves, but it is highly probable that their huge growth in annual gold production may not be something they will be able to continue for much longer.  I believe their annual gold production will more than likely peak in the next few years as their reserves and mines become increasingly depleted.

China will probably continue to produce a lot of gold in the following years, but their overall production will likely decline.  This is precisely why they are obtaining a great deal of gold properties throughout the world…. there’s nothing like guaranteeing future gold supply by owning gold mines in foreign countries.

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18 Comments on "CHINA: Running Out of Gold Mine Supply?"

  1. Has anybody done a similar study on silver. I would be interested to hear of the rate at which silver reserves are being mined. Steve, do you think silver will be included in the future gold standard model, bringing us back to a bi-metallic standard with silver being used for everyday purchases?

  2. China can always invade australia 😀 I predict that australia will be under china in less than 20 years.

    • No the USA will help us out, with Obamacare, Homeland Security, and … actually which is tastier fLIED lice or fLIED soylent green? White sludge or green sludge with a crispy McDonald’s chingking nugget coating?

      Actually it is Antartica you have to watch – China does not recognise the UN distribution.

  3. It indeed seems that China is going through its reserves as fast as possible. More emphasis should have been laid though on how dynamic the reserve situation is. The USGS actually explains this in an appendix to the article you posted. Here’s a snippet:

    “Reserves data are dynamic. They may be reduced as ore is mined and/or the extraction feasibility diminishes, or more commonly, they may continue to increase as additional deposits (known or recently discovered) are developed ….

    For example, in 1970, identified and undiscovered world copper resources were estimated to contain 1.6 billion metric tons of copper, with reserves of about 280 million metric tons of copper. Since then, more than 400 million metric tons of copper have been produced worldwide, but world copper reserves in 2012 were estimated to be 680 million metric tons of copper, more than double those in 1970, despite the depletion by mining of more than the original estimated reserves.”

    The whole thing can be found here under Appendix C: http://minerals.usgs.gov/minerals/pubs/mcs/2013/mcsapp2013.pdf

    • Markus,

      Thanks for the explanation as well as highlighting the definition in the appendix. However, I do understand the “Dynamic” nature of reserves as per the USGS. I read these darn things all the time…LOL. On the other hand, it doesn’t change the fact that they are mining their reserves at a faster pace than anyone else on the planet.

      Furthermore, the presentation by MinEx Consulting does show that their discoveries aren’t all the great compared to the amount they are producing.

      For example, 430 metric tons comes out to be nearly 14 million oz of gold. That is a huge amount. To produce 14 million or more next year and the year after will take a huge… I mean huge effort to prove up more reserves. At some point in time the MORE ONE PRODUCES, the faster the peak comes and inevitable decline.

      steve

      • Btw, just to point it out.. in the USGS presentations, (world) reserves have been relatively steady over the last 15 years or so – actually even grown slightly.

        Your point is always that with higher energy costs comes peak prosperity, and peak resources. Well, during those 15 years, oil prices have tripled, and I am sure fossil fuel usage by the mining industry has multiplied by a lot more than that, due to falling ore grades. We do see increased production costs, but peak precious metals is nowhere in sight.

  4. lastmanstanding | November 26, 2013 at 7:57 am | Reply

    Just image how much oil/fuel that they are smoking thru to accomplish such a task…

    Everyone only thinks about diesel, gasoline when thinking about oil…it takes lots of just plain oil to lubricate this equipment…engine oil, hydraulic oil…and grease. Do you know how much of these items it takes to service one of these humungous excavators, trucks, monster doziers…lots.

    Image that on a world scale…so actually, how much of reported oil goes to these items?

    Peak oil, peak gold, peak silver, declining food production.

    Thank God he helps me live a day at a time…and gives me enough common-sense to plan for the future.

    • lastmanstanding,

      Agreed. The the Chinese will last longer as an economic power slash empire, but they too will succumb to impact of peak oil. However they will be able to access more oil supplies as the peak hits compared to many other countries in the world. Matter-a-fact, they have already done so.

      The western countries with the most debt will suffer the greatest in a peak oil environment.

      steve

      • we’ll see. the chinese have 1.3 billion more people to feed with approximately the same agricultural power as the USA and a similar exposure to peak oil.

        When the debt is liquidated one way or another, China will have more gold and the USA will be a 3rd world country for sure, however I’m not sure this buys them a free pass with starvation, war, a fucked environment and dealing with peak everything.

        • Rojelio,

          Now, I am not saying the Chinese are going to be the KING OF THE HILL for years and years, but I would imagine they will stay afloat a little longer compared to the most of the western countries when the FIAT MONETARY GOLD REVALUATION PHAT LADY finally signs.

          steve

      • may I also add that some of the middle eastern countries may be some of the most hellish places on earth in a peak oil scenario. Many of them are massively overpopulated with respect to their carrying capacity (not enough water). Much of the water desalination plants are run by 50cent/gallon or less refined fuel.

        as their ability to export excess oil declines their ability to import food will decline. Importing a ton of grain is the same as importing the 1000 tons of water it took to grow that grain. Importing meat is even much more water intensive.

    • Amen!
      &
      Nice Q

  5. Ancient Chinese proverb (that I just made up):

    Gold in vault, better than gold in ground.

    • pmbug,

      I actually believe that is indeed the modern Chinese proverb. What is the use of having all that gold in the ground, when it can be much more useful in the future sitting in their vaults.

      I still believe the Chinese are going to peak in gold production in the next few years. It is just a huge feat to be able to produce 14 million oz in one year, much less on a on going basis. But then again, we could be surprised.. as we have no idea what they are doing in secret in their backyard.

      steve

      • Indeed, “we have no idea what they are doing.” And I would surmise, neither do the USGS nor the GFMS do either! Their sumations of China’s gold reserves are (again IMHO) nothing more than guesstimations.

        The GFMS and the WGC along with the BLS have become increasingly suspect, as in respect to their pronouncements of statistics as being the truth.

        Today we have the BLS reporting that the US jewellery demand has fallen into record territory. One must ask why? A drastic uptick in unemployment of jewellers? The end users (consumers) not purchasing? A lack of product supply?

        No, these entities are highly suspect (IMHO) in their statistical pronouncements.

  6. Hi Steve,

    Takes on gold from what seems to be big Chinese thinkers

    One of their central bankers;
    http://www.ingoldwetrust.ch/pboc-governor-zhou-xiaochuan-on-gold
    A professor
    http://www.ingoldwetrust.ch/professor-yu-yongding-on-gold
    and from the China gold Association
    http://www.ingoldwetrust.ch/gold-leasing-is-a-tool-for-the-global-credit-game

    Even though we disagree on the moment of peak oil, no matter what if China does start to include gold in their payments on way or the other it seems to me they will be able to take a lot of oil consumption away from the USA and EU and funnel it to them. So I wont rule out China can withstand peak oil better then others.

  7. Hey Steve wonder if you saw Leeb’s post on KWN. He mentioned current recon on China producing mines at $2000-2500/OZ. Said he was comfortable with the source. Why would China be producing $2500 gold in a $1200 market? Answer its going alot higher than that. my add; would also be cause petroleum is also still reasonably cheap compared to the future.

    Can you confirm his comments? Speculations appreciated also

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