JOHANNESBURG (miningweekly.com) – Expenditure on exploration has been declining to such an extent that a break in the continuity of global gold production is inevitable.

“It’s only a question of when,” says Gold Fields CEO Nick Holland, who points out that it currently takes 18 years to get a mine from grassroots exploration through to production, compared with ten years a decade ago, and that the average reserve life of gold mines is now down to 13 years.

With exploration spend decimated and new mine spend not there, a supply gap is seen as certain over the next decade, says Holland, who finds the supply side of gold mining to be replete with issues.

For example, the average grade of gold mined is now at a low 1 g/t and poised to drop even further to 0.82 g/t once existing reserves are depleted.

Moreover, in real terms, the gold price has not increased since the high of the 1980s and all-in sustaining costs have soared 339% in the last 14 years.

At the same time, shareholder value has been destroyed by between 50% and 80% since 2007, despite ongoing capital investment.

That said, gold mining remains critical to the 4.2-million people it employs, 90% of them locally recruited.

On top of that, gold-mining companies have $284-billion invested in socioeconomic development and considerable sums invested in road, power, water and educational infrastructure that benefits communities at large.

The contribution of gold mining to the gross domestic product of the global economy totals $172-billion, half of it direct, and between 77% and 90% of the operational expenditure of gold mines remains in the 30 countries where the gold is mined, 60% of them lower income countries.

“That shows how important the gold industry really is,” says Holland, who in the last two weeks has put his viewpoints across at the Gordon Institute of Business Science in Johannesburg and also at Future Mine 2015 hosted by the Australian Institute of Mining and Metallurgy in Sydney.

Gold still represents only a tiny 1% of global funds under management, “so the world can’t say it is over invested in gold, that’s for sure”, and its fortunes remain closely linked to the fortunes of India and China, which together represent half of the global demand for gold.

Expected to stimulate Chinese demand is the opening of a gold trade zone in Shanghai, where investment can now take place in local currency.

Central banks are continuing to be net buyers of gold and little demand-side change is anticipated going forward.

But a new supply-side recipe is needed - one that avoids reliance on an increase in the gold price for a bail out.

“We’ve got to look at new reserves to create value and we’ve even got to go back to the stuff we’ve left behind and see if there’s new value that can be created from it,” says Holland.

Capital allocation, which many have branded capital misallocation, is key to attracting back investors and the industry will have to do a lot more with its staff and machines to increase productivity.

The large, fixed-cost-structured mines of the past will have to give way to new agile operations that are adaptable to volume changes and the economics of low-grade orebodies will have to be improved markedly.

Since 2010, the JSE- and NYSE-listed Gold Fields has been on its own rocky mechanisation journey at its South Deep gold mine, west of Johannesburg, where a rebasing through heavy investment in machinery, technology and skills is being intensified.

As the world’s second-largest gold orebody, South Deep is expected to be South Africa’s “last mine standing”.

The operation is able to bulk mine at depth by replicating 1 200 m stress conditions 2 600 m below surface.

Vertical virgin stresses at 75 MPa pressure are reduced to vertical field stresses at 35 MPa.

South Deep makes use of low-profile trackless equipment to minimise exposure to high field stresses and backfill to reduce pressure release rates at the rockface.

Holland expects that the gold mine of the future will focus on operating practices and technology, talent and leadership, partnerships and joint ventures and responsibility and transparency.

Introduced will be new exploration trends, mechanised, automated and digitised operations, new kinds of CEOs, governments owning 50% equity in mines, shared value with local communities and risk and reward relationships with employees.