As gold prices climb ahead of record rates amid rising geopolitical concerns and falling interest rates, investors are looking toward the mining sector to understand how supply levels may look next year. Six gold projects spread across Chile and Argentina are facing various obstacles right now, threatening production rates and potentially promising a constricted supply moving forward. This potential supply restriction, combined with the rising demand rates, could boost gold prices beyond the recent record-breaking level.
Now, mining corporations are expected to keep up with gold’s raging demand levels by ramping up production rates.
According to Fitch estimates, global gold production should remain robust through 2027, with output rates growing from 117 million ounces in 2023 to 135 million ounces in 2032. Despite this forecast, a few major gold projects in Chile and Argentina are struggling to keep up with the market, facing various issues with environmental concerns, capital cost increases, and permitting red tape.
To start, the Mara project in the Catamarca province of Argentina has been sitting in the feasibility stage, awaiting pending permits to continue advancing into its exploration stages. Glencore acquired control of Mara back in September for $475 million, though it has yet to begin construction or even define its beginning stages despite the project having a decent infrastructure from the previous Bajo de la Alumbrera operation.
Once constructed, the Mara project has the potential to yield 7.4 million ounces of gold reserves over the span of an estimated 27 years. However, the issue lies in costs, as the project’s required investment is roughly $3 billion.
Another Argentine-based project, the Veladero mine in the San Juan province, may not have the same funding issues, but its recent dip in production reveals quite a complex concern. The leaching platform, owned by Toronto-based Barrick Gold and China’s Shandong in a joint venture, is undergoing an $81 million expansion project due in 2024. Despite this investment, the mine’s recent production levels have plummeted due to low-grade resources.
Last year, the Veladero mine only yielded 390,000 ounces compared to the maximum expectation of 480,000. Despite a slight increase of 2% during 2023’s quarter, current forecasts show the total dropping even further to 360,000 ounces this year. To make matters worse, the joint venture frequently receives complaints regarding pollution concerns and toxic dumping on surrounding rivers, making it challenging to address the dropping production rates.
Another corporation operating in the same region, Lundin, has announced its plan to de-risk its JosemarÃa copper-gold-silver project, opening up the $4.1 billion investment to new partners hopefully willing to help finance the investment. If Lundin can land new funding, production will reach 231,000 ounces of gold per year by 2025.
When we shift focus over to Chile, many of the same issues persist. Starting with the Salares Norte project in the northern Atacama region, owned by Gold Fields, numerous issues with filter presses and mills have led to production decreases and delays.
The South African company recently reduced its gold outlook for 2024 from 500,000 ounces to 400,000 to 430,000 and may reduce it to 350,000, depending on how the delays persist. The delays have already increased capital costs from the expected $20 million to over $1 billion.
Also in the Atacama region, Australia’s Kingsgate has developed and approved an environmental study for the Nueva Esperanza project worth $215 million but is still seeking parties to finance the project after failing to sell it to TDG Gold last year. Nueva Esperanza has the potential to produce 120,000 ounces of gold per year starting in 2025 if it can land financing.
Finally, in the Atacama region again, Kinross is working on replacing its La Coipa mine with Lobo-Marte before La Coipa closes in 2026. While Lobo-Marte is expected to produce 4.7 million ounces over 16 years, permits are, of course, still pending, and the earliest that construction could start would be 2025. Most of the delay issues here are arising from conflicting decisions regarding when to definitively replace the La Coipa mine, which is still set to produce 240,000 ounces this year.
These six projects across Chile and Argentina show just a glimpse of the red tape and funding issues that mining operations face when attempting to meet the industry’s growing demand rates. With the gold market booming right now and producers struggling to keep up, we could see a substantial supply gap that further supports prices. As always, investors should consult their advisors before making any portfolio decisions.
