The last eight months of the gold industry has been exceedingly contrasting. Only in October last year, survival was the word on the lips of most gold mining companies. The gold price fell to $1 050/oz and many companies were debt laden.

Placed on the chopping block were capital expenditure (capex), exploration and even stay-in-business capital. Mines were sold and many CEOs focused on paying down debt.

Fast forward to the middle of this year and the scenario changes.

The gold industry experienced something it had never experienced – a $300/oz rise in the gold price in eight months, accompanied by some spectacular rises in the share prices of gold mining companies, some rises in the 200% range.

But, while the gold price looks set for another long period of strong performance, many see the industry as failing to keep pace.

By including lower gold grades in the gold reserve calculations, collective mine life has fallen and, for the first time, significant declines in gold production are being forecast.

In a presentation to journalists last week, Randgold Resources CEO Dr Mark Bristow flashed a graphic onto a large screen that showed that the number of ounces being replaced by exploration had nosedived.

In the last 16 years, the gold mining industry has failed to replace more than half the ounces that it has mined.

Although exploration budgets peaked at $6-billion in 2011, exploration success has been dismal.

As a result, the industry’s bellwether stocks are now forecasting substantial declines in gold production.

The industry did not suffer from the lack of gold discovery because lower grades were included into the reserve base, which was kept economic by a rising gold price.

Even though the industry could not replace the gold that was being mined, the period of a rising gold price made it possible to bring lower grades into reserve calculations and thus increase reserves.

But, because so few new gold discoveries have been made, the industry now has a reserve grade that is materially below what it was in 2000.

The only way the industry is now able to increase the grade at which it operates is to either discover high-quality ounces or reduce mine life still further.

Just to keep the industry supplied will require the discovery of 90-millon new ounces a year and to reverse the grade deterioration will require 180-million ounces a year, but real discovery is down at only 10-million ounces to 15-million ounces a year.