MAC/20: Mines and Communities

The Problem with Gold

Published by MAC on 2001-05-01


The problem with gold

Introduction to the MWAP Gold Information Pack

The following is an introduction written to a larger collection of materials on the subject of gold.


Important questions

Why is it that gold continues to be the prime target for metallic exploration, even though the market price fell below the break-even point of US$300 an ounce in 1997, and has climbed only erratically since?

Why is it that, although the world's industrial nations (led by the US) agreed to abandon the gold standard as a backing for currency nearly thirty years ago, it continues to be held by a variety of banks, institutions and individuals, as a "hedge" against inflation or currency devaluation, or a "store of value"?

Why, when nearly all the gold ever mined is theoretically available to be re-used, do states, mining companies, and small-scale miners, continue to search for and exploit gold across the world?

This information pack consists of a collection of recent articles (1997-1999) drawn mainly from the London Financial Times and the mining press, which is intended to provide clues to these important questions.

The pack is presented to Minewatch Asia Pacific contacts and associates NOT as a definitive dossier (it is drawn from a much larger information file) but as an aid to discussion and debate.



Dilemmas and debates - for the industry

Can any conclusions be drawn which answer the questions posed above (and others)?

Whether gold is mined or left in the ground is subject to a number of different economic and political criteria. These are sometimes contradictory. For example, the "hedging" and forward selling of gold is based largely on the value of "assets" which have not yet been mined (and may never be): waiting for that value to increase through market manipulations can be a key ploy in raising finance on the part of mining companies. Yet, some companies have decided to increase the exploitation of their reserves, even while the price teeters at its lowest level for 17 years. Two years ago, as the gold industry contemplated the prospect of a collapse in confidence in the world's most reliable and durable metal, some of its adherents began arguing that gold should no longer be viewed as an exchangeable commodity but regain its previous position as a hard currency.



"Economic crisis" may mean both loss - and gain

Part of the "Asian economic crisis" has undoubtedly been fuelled by speculation, using "soft funds" in gold projects that have proved disastrous, such as the Bre-X prospect in East Kalimantan. It has given both grief and opportunity to those seeking a profit from gold. While small investors may have lost out, as share prices collapsed in exploration companies, so the multinationals have tended to gain, as the dollar strengthened enormously against local currencies. This has been true in South Africa as well – though Anglo American Corporation, the world's biggest gold miner, has made losses as well as gains, because some of its costs are denoted in Rands.

For those who have experienced the true "cost of gold" - not as a ring on the finger or a lace around the neck, but as a landscape despoiled, ancestral domain appropriated, rivers polluted and community health set at risk – the most important question is: how to stop this useless and destructive searching for an illusory eldorado?


Campaign issues

Should central banks and the IMF be urged to increase their sales of gold, so that the price will fall further and exploration expenditures be cut back even more than of late, and some mines will have to close?

The relationship between previous central bank sales and the "behaviour" of the market price has been helpful from the point of view of concerned communities. But, as with any commodity, as the price falls, so it becomes more attractive for some people to buy - and the market moves towards "balance". As you will see from this information pack, there was even a recent serious proposal by one gold industry enthusiast to hasten central bank sales, so that short-term vagaries in the price would be ruled out, once and for all.

High cost producers have had to abandon expansion of some existing mines, and cut back exploration expenditure in some areas (notably North America, where not only economic but also environmental costs have been rising). The total amount of gold exploration (measured both in terms of expenditure and area) has dropped since 1996. Many miners have changed their practices as a result. They have cut costs by sacking workers, adopting more mechanised methods of extraction (including the consolidation of mines and open-pit and bulk mining techniques) and moving to higher grade deposits, rather than moving out of gold mining itself. And - importantly - the bigger companies have been able to purchase new prospects from junior exploration companies at a cheaper rate than before, as the juniors’ shares and fortunes fall.

Indeed, it could be (and the industry clearly hopes) that, as mining gold in the older zones of exploitation becomes less economic, so exploration will actually increase in new areas, where labour, environmental, and "access" costs are significantly lower. This is clearly already happening, as smaller ("junior") companies - but also larger ones such as Ashanti Gold - advance into new mining areas in Tanzania and in the Guiana Shield.


Is gold on its final run for our money?

But we can hazard one compelling conclusion from the reports, surveys and proposals which are represented here: the gold mining industry IS in crisis. Some of the proposals for propping it up (such as making new investments in downstream smelting and manufacture, or directly marketing gold coins and jewellery) may not be strategies of last resort, but they do indicate a floundering around in the effort to regain public confidence in gold.

The potential opposition of local communities is becoming more, not less, important to companies as they decide where to go, or even whether to go anywhere at all. As the costs of gaining access to deposits begin to mount along with the pressures to employ and train local workforces, and to build-in rehabilitation, compensation and "worst case scenario" costs, so do the corporate costs of mining.

This should mean that private investors in gold mining stocks, as opposed to speculators in metal trading, begin to lose confidence in certain countries or regions. The fortunes of those companies which have a smaller global "spread" than others, such as TVI in the Philippines and others limited to one or two areas, will suffer first. But - as the cash flow generated from gold begins to reduce - so even the bigger companies may not have the capacity to take on expensive expansions or enter new areas.

The key question may then become: will miners who withdraw from gold exploitation feel viable enough to remain in the areas they covet, searching for other minerals? Or will they be able to effectively diversify into other minerals, such as diamonds?

The terminal shaking of the "golden bough" does not in itself mean the mining industry will radically change.

Minewatch Asia Pacific Project, July 1999



Further copies of this information pack are available from

Minewatch Asia Pacific, Agpaoa Compound, 111 Upper General Luna Road, Baguio City, Philippines

Tel/fax: +63 74 443 9459
E-mail: bongcorpuz@phil.gn.apc.org or ccorpuz@skyinet.net

or Philippine Indigenous Peoples Links, 111 Faringdon Road, Stanford in the Vale, Oxfordshire SN7 8LD, England
Tel: +44 1367 718889
Fax: +44 1367 718568
E-mail: tongtong@gn.apc.org

Home | About Us | Companies | Countries | Minerals | Contact Us
© Mines and Communities 2013. Web site by Zippy Info