TORONTO (miningweekly.com) – Global gold production from mines will continue to decline, as the gold industry battles maturing mines, a scarcity of new discoveries and longer permitting and construction times for new projects, the CEO of the world's biggest gold miner said on Wednesday.

“The gold industry needs to replace almost 100-million ounces of reserves per year, and clearly this has not been happening,” Barrick Gold chief Aaron Regent said at the company's annual shareholders meeting in Toronto.

Gold mine supply has been on a downward trend since 2001, despite a more than tripling of the gold price, and this trend is likely to continue, he said.

New projects can take as long as seven to ten years to bring online, compared with just three to five years in the past, Regent said.

Several gold projects around the world have also been put on ice because of ballooning capital costs and difficulties raising finance.

Global gold mine production contracted almost 3% last year, to its lowest level in 12 years, according to consultancy GFMS.

"The fact that it is getting harder to finance gold mines, it is clearly more difficult to find, permit and build the mines - they are more expensive and it takes longer - means that supply is likely to decline more than people think," Barrick CFO Jamie Sokalsky told analyst on a conference call later in the day.

DEMAND

With gold supply dwindling, demand for the yellow metal, especially from investors and possibly as a result of central back buying, can be expected to continue to grow, Regent said.

The financial crisis, and government actions to stabilise the global economy, have helped gold to reassert itself as “an attractive financial asset, as a store of value, a safehaven and an alternative to currency, stocks and bonds”.

Exchange-traded funds have attracted a whole new group of gold investors, which have steadily increased their holdings in the yellow metal, despite investors' need for liquidity over the past year.

“And there is good reason to believe that the investment in gold ETFs will continue its uptrend.”

Gold demand could also be significantly boosted by a move by central banks to diversify their reserves, Regent said.

“The concentration of US dollar reserves is high, and actions by central bankers imply that they are rethinking their portfolio strategies are are starting to diversify their holdings.”

Gold sales by Central Bank Gold Agreement signatories slowed last year, and there has been evidence of central banks in countries like Russia and China buying gold.

On Friday, a Chinese official revealed that the nation had secretly increased its gold holdings by more than three quarters since 2003, to 1 054 t.

But gold still represents just around 1,5% of China's total reserves, Regent said.

“As a relatively small market, a small reallocation [by central banks] of investment to gold could have a large impact on demand.”