August 2007

Only predictable thing is unpredictability

Some insights into the state of gold

By D. Zlotnikov

Michael George, the gold commodity specialist on the United States Geological Survey Mineral Information Team, has people calling him on a regular basis, asking him about the price of gold.

“They ask me what the price of gold will be next month,” said George, “and I tell them there are three options. It can go up, down, or stay the same. And I’m betting it’s going to go up or down. And I’m right about 90 per cent of the time.”

George’s job is to write articles and answer questions about gold. The questions can come from both the usual suspects - investment bankers, commodity analysts, brokers - and the less expected ones: George knows without looking when term paper season starts, for example.

When it comes to price forecasts, “the only predictable thing is unpredictability,” he said. “I think meteorologists have an easier time.”

One thing George is standing behind, though, is that there’s a lot of interest in gold. “People call me up and want to know where there’s gold development going on. I tell them, ‘look out the window. Do you see dirt? Then there are people digging for gold somewhere near you.’ If there’s dirt, there’s gold.” The only place that hasn’t seen exploration is the Antarctic, and we really do mean the only place. “Bottom of the Pacific Ocean? They’re looking there. Atlantic Ocean? They’re looking there too.” George mentioned two companies involved in these unusual projects, the aptly named Nautilus Minerals and Neptune Minerals. The former is working off the shore of New Zealand; the latter, near Papua New Guinea.

“They aren’t doing it all on their own,” said George. “There’s investment coming from the major gold firms.” Nautilus Minerals, for example, lists Placer Dome (now Barrick Gold) as a major investor.

The tools for getting gold

Guy Deschênes, a gold processing researcher with Natural Resources Canada, does not believe we will see any major technological breakthroughs in gold processing in the near future. Instead, he believes advances will continue to bring gradual efficiency improvements, in areas such as reagent consumption and management.

This is not to say there isn’t research being done into potential breakthrough areas. Deschênes himself was originally brought in to work on one such project. “When I was hired here, it was to look at cyanide substitutes, 22 years ago. And I worked on that for four years—at the time it was a very popular area. But we didn’t get any results. For a while it went slow, but then it started again. Placer Dome, about ten years ago, wanted to find an alternative, and they gave themselves about seven to eight years. And eventually, about six months before the takeover by Barrick, they saw they weren’t getting anything, so they gave up. But they weren’t the only ones working on this; there were other companies doing this research as well.” But thus far, none of the research and money has resulted in a cost-effective alternative, either for the cyanide used in leaching, or the carbon used for filtration.

Deschênes knows how rare and difficult major breakthroughs are to achieve: he is partly responsible for one; the 50-fold decrease in cyanide used in silver leaching out of aurostibite (a gold/antimony mineral mix).

“The technology that we invented leaches silver more efficiently using less cyanide,” said Deschênes. “When gold is present, its extraction is slightly higher than using the conventional technology. The heavy metals also dissolve less. The treatment of the effluent is consequently cheaper.”

The lower likelihood of breakthroughs, according to Deschênes, is also due to the approach mining companies take to research. “The culture of research and development in the mining industry is much more conservative than in other areas such as electronics, computers, and aerospace. A recent survey of the mining industry indicated that they would like the federal government to invest in long-term research with high risk and large impact. The mining industry would rather invest in short-term research with low risk.”

With the increasing interest in gold, brought on by high prices, more money will likely trickle down to research. However, even if that happens, we’re unlikely to see any results for a few years yet.

“Usually it’s a newer mine that uses new discoveries, because they don’t have to go through a switch-over,” explained George. “Suppose you’ve developed a magic way of processing gold, say a carbon and pulp filtration technology. You demonstrate that it works well, you go to all these shows, show it to all these mining companies, and convince one of them to do a pilot project. If it works very well, then that company will take it and say ‘okay, let’s patent this, and let’s use it in this new mine that’ll open in four to five years.’

And then they use it, and everyone sees it, and says, ‘oh yeah, it does work better,’ and will adopt it as well. That’s how heap leaching did it.”

This complex and - for lack of a better word - conservative process means that any advances take a decade or more to achieve wide adoption. As a result, the short-term gold price is virtually immune to any technological developments in the industry.

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