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IotaOrigin

Apr 6 • 31 tweets • 15 min read

1/x Minds over Markets🚩

What`s happening on the gold market and what can we expect?
Today we take a look at the supply side.

thread below part 1/2🧵⬇️
#IotaOrigin #iota #ASM $ASMB $SMR #Mining

2/x All gold ever mined, also called above-ground stocks total 205,238 tons.
This corresponds to a market capitalization of $12,5 trillion.
Although this number seems enormous, all the gold in the world that has ever been mined fits into a cube with an edge length of just 22m.

3/x The current annual demand is 4.666t and the annual supply corresponds exactly to this demand. The supply can be broken down into two further key figures.

4/x The supply is mainly composed of the mine production (3,516 tons) and the recycling (1,150 tons). Lets first take a brief look at recycling:

5/x Miniaturization prevents the economic separation of metals and their recovery. In addition, rising prices of desirable raw materials do not lead directly to higher recycling rates, but rather to substitution of the raw material.

6/x For example, both effects contributed to the declined use of precious metals in printed circuit boards. Use of Precious metals was reduced by 40% for gold, 30% for palladium and 70% for silver. All this while increasing performance, but in turn making recycling more difficult

7/x Gold consumption in the technology sector is also stagnating at around 330 tons and will not contribute to increased recycling in the future for reasons mentioned above.

8/x The second factor is the recycling of jewelry. Although prices are close to all-time highs, there is no selling pressure as in 2012. This is mainly due to extensive government subsidies during the crisis. There are no indications of higher supply in the future from recycling.

9/x On the contrary inflation fears are driving demand for gold bars and coins reducing recycling supply. In particular, demand from China and India has increased by more than 40%.

10/x So it is more likely that the growing middle class in these countries as well as the cultural aspects, combined with the global political risks and inflationary pressures will increase the demand for gold in the section of bars, coins and Investment.

11/x Lets now turn to mine production.
Mine production has been rising steadily since 2008, but has recently only been able to achieve growth rates in the low single digits and reached a peak in 2018. This has not been overcome to date.

12/x In principle, this dip can be explained by closures and dislocations in the wake of the pandemic, however, even in 2019, before Covid, the production of 2018 was not exceeded.
So what other factors could explain the weakening of production besides the covid pandemic?

13/x After the gold price collapse in 2012, the industry took large write-offs on acquisitions that were too costly and implemented savings rates. Since then, the industry has been consolidating.

14/x This graph illustrates the drama of the past and also suggests the future. While in the boom of 2012 the exploration budget reached new heights, no large amounts of new reserves and resources were developed. The exploration budget also stagnated in the following time.

15/x Looking at what the top 20 producers spent their $69.5 billion exploration budget on in between 2009 - 2019, $51 billion was spent on acquisitions to increase gold reserves while $18 billion was spent on exploration.

16/x While acquisitions contributed 53% of the reserve growth, exploration spending increased reserves by 47%. Thus, investment in exploration would be more productive and less expensive.

17/x However, the actions initiated by the top20 dont mirror expanding exploration, as you can see in the following two graphs.

While the majors' budget is steadily growing...

18/x ...the grassroots and juniors projects in particular, which are responsible for new explorations, lost shares.

19/x Accordingly, this is reflected in the gold discoveries (>2Mio oz tr) which are steadily decreasing and will lead to a shortage on the supply side in the future. Not only do new deposits have to be found, they also have to be developed and mined, which can take up to a decade

@BarrickGold

20/x So, what is the strategy of the majors?
@BarrickGold gives a nice example of their new strategie:

In 2018, Mark Bristow, founder of Randgold Resources, was taken over by @BarrickGold. In doing so, they formed one of the largest gold producers in the world.

@BarrickGold

21/x The following year, Bristow took over as CEO of @BarrickGold. Shortly thereafter, a joint venture between Barrick (61.5%) and @NewmontCorp (38.5%) was formed, creating the world's largest gold mining complex in Nevada.

22/x The ten biggest gold miners in the world put together contributed 25% of global total gold output in 2020. The industry seems to have recovered.

23/x While investments are being scaled back, buyback programs and higher dividends are being announced. The majors switch from growth to cash cow mode - the market situation allows it. barrick.com/English/news/n…

24/x This strategy is short-sighted and will drive the gold price to new heights and will mainly benefit shareholders of the majors. Accordingly, various forecasts are adjusted. ceylontoday.lk/news/goldman-s…

25/x The catch in this story is, that 16 out of 20 of the largest gold producers have fewer years of production ahead of them than behind them. New resources to buy up are no longer available due to the low level of investment.

26/x In this framework, we will see rapidly rising gold prices and expensive takeovers within the industry. Accordingly, we are on the verge of a new gold rush!

In the next part 2/2 🧵 we will discuss how IotaOrigin can operate and benefit in this environment.
You made it this far? Learn more about us at the following links:
iotaorigin.com
blog.iota.org/trusted-supply…

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