Gold Hits Records on Strong Demand But New Supply Harder to Find

• Gold prices reached record highs in 2024 amid economic uncertainty and forecasts for lower interest rates.
• Major gold producers are expected to report strong earnings growth in Q3 2024 as gold prices soar.
• Gold supply is projected to peak in 2026 but then decline through 2028 as discoveries become scarcer.
• Recent gold discoveries have been smaller and exploration has focused more on existing assets vs greenfield projects. Higher exploration budgets since 2017 provide some optimism for new gold discoveries to bolster future supply.
• Cabral Gold, Serabi Gold, Maple Gold Mines, Revival Gold, Seabridge Gold, and NorthIsle Copper and Gold highlighted their project progress and 2025 outlook to deliver robust earnings growth and margin expansion on higher gold prices.

As we enter 2025, gold remains a highly relevant asset class and potential investment opportunity. In 2024, gold prices soared to record highs on the back of economic uncertainty, geopolitical tensions, and expectations for lower interest rates. This has translated into very strong financial performance for major gold mining companies.

However, looking ahead, the future of gold supply faces some challenges. Major new gold discoveries have become increasingly scarce in recent years, with exploration focused more on expanding existing assets rather than greenfield projects. Gold supply is projected to peak in 2026 before declining through 2028.

Gold Prices Reach Record Highs

Gold prices reached all-time record levels multiple times in 2024. As Reuters reported, gold has surged nearly 27% this year, reaching a record high of $2,790.15 on October, as investors sought the yellow metal amid geopolitical uncertainty and U.S. rate cuts ^[3]

The article noted several factors supporting higher gold prices, including:

• Geopolitical tensions expected to remain high heading into 2025
• Central banks continuing to buy gold as a safe haven asset
• Concerns about the US debt and deficit situation, especially with a new presidential administration

"Geopolitical tensions are expected to remain high into next year, with central banks continuing to buy gold, while the U.S. debt situation is likely to worsen and the deficit to grow under the Trump administration, fuelling ongoing safe-haven demand for the metal." - Peter Grant, Vice President and Senior Metals Strategist at Zaner Metals^[3]

With the Federal Reserve signaling a more cautious approach to further rate hikes after delivering a quarter-point cut, the environment remains favorable for non-yielding assets like gold. According to analysis by S&P Global Commodity Insights, gold is forecast to average $2,612.50 per ounce in 2025.^[1]

Gold Miners Deliver Strong Earnings Growth

The surge in gold prices has unsurprisingly translated into very strong financial results for major gold mining companies. An analysis by S&P Global Market Intelligence found that 8 of the 10 largest gold producers by market cap are expected to report higher earnings in Q3 2024 compared to the prior year.

The two largest gold miners, Newmont and Agnico Eagle Mines, are both on track to more than double their earnings per share year-over-year. Newmont's Q3 EPS is estimated at $0.82, up 128% from $0.36 in Q3 2023. Agnico Eagle is expected to post EPS of $0.98, a 123% increase from $0.44 a year ago. ^[1]

"This bodes well for significant margin expansion and profitability for gold mining companies," said Ryan McIntyre, managing partner at Sprott Asset Management. "If the current gold price remains stable, we anticipate further margin expansion in the fourth quarter."^[1]

Analysts at Scotiabank Global Equity Research estimate that the higher gold prices should drive margin expansion of around 12% on average for the gold producers they cover. This sets the stage for gold miners to potentially exceed expectations and further grow earnings heading into 2025.

New Gold Discoveries Become Scarcer

While the near-term outlook for gold miners remains robust, one concerning trend is the lack of major new gold discoveries in recent years. An annual analysis by S&P Global Market Intelligence found that the number and size of significant new gold discoveries has declined considerably over the past decade.

From 1990-2023, a total of 350 gold deposits were discovered globally, containing 2.9 billion ounces of gold in reserves, resources and past production. However, the report noted since 2020, there have been only five major discoveries with a total of 17 Moz of gold, accounting for just 22% of the additional 79 Moz of gold added in the 2024 update. Recent discoveries are scarce and smaller in size, with an average of 3.5 Moz compared to the 5.5 Moz average from 2010 to 2019. ^[2]

Exploration has increasingly focused on expanding reserves at existing projects rather than uncovering brand new major deposits. The report states none of the discoveries made in the last 10 years have entered the list of the largest 30 gold discoveries, supporting our long-held view that the decadelong focus on older and known deposits limits the chance of finding huge discoveries in early-stage prospects.^[2]

This lack of major new discoveries raises concerns about the future trajectory of global gold supply. S&P Global expects gold production to peak at 110 million ounces in 2026, but then decline to 103 million ounces by 2028. Most of the growth and subsequent decline is driven by a few key producing countries like Australia, Canada and the US.

Reason for Optimism?

While the slowdown in major new gold discoveries is concerning, there are some signs of optimism when it comes to earlier-stage exploration activity. The S&P report^[2] looked at initial resource announcements, which can provide a leading indicator of the pipeline of potential new gold deposits.

From 2013-2016, during a period of declining gold prices and exploration budgets, there was an average of 30 initial gold resource announcements per year with an average gold content of 13 million ounces. But as gold prices recovered and budgets increased again starting in 2017, so too did the number and size of new resource announcements.

From 2017 to 2023, there were an average of 42 announcements with an average of 24 Moz of gold each year, compared to an average of 30 announcements and 13 Moz of gold from 2013 to 2016, when gold budgets were declining. To be clear, an initial resource is a very early-stage estimate that may or may not ultimately lead to an economical gold discovery. But the trend does indicate that increased exploration investment is generating a bigger pipeline of prospects. Annual global gold exploration budgets peaked at $7 billion in 2022 after bottoming at $3.3 billion in 2016.

"The higher exploration budgets since 2017 bring a tad of optimism for the future of gold supply, as the number of initial resource announcements continues to grow in size and number," the S&P report^[2] added. Sustained high gold prices should allow this increased exploration activity to continue.

Maple Gold Mines

Maple Gold Mines is poised for an exciting 2025 as it advances its flagship Douay Gold Project in Quebec's Abitibi greenstone belt. With a solid foundation of over 3 million ounces of established gold resources, Douay offers significant expansion potential across a recently consolidated 400 sq km land package. The company is fully funded for 12-18 months of aggressive drilling aimed at expanding the resource to 4-5 million ounces and making new discoveries.

Kiran Patankar, CEO, points to the disparity between gold prices and the undervaluation of junior mining companies, emphasizing the opportunities created by current macroeconomic conditions.

"The disconnect between junior company valuations and the gold price has never been greater. We still sit at a $2,600-$2,700 gold price, with all the chaos agents and macroeconomic issues in the world, which remain favorable and constructive."

Strategic partnerships with major producers like Agnico Eagle validate the asset base, while 100% ownership of the consolidated land package provides flexibility to maximize shareholder value. Led by an experienced management team, Maple Gold is focused on closing the valuation gap to peers and positioning itself as an attractive acquisition target for larger miners seeking scarce gold assets in Tier-1 jurisdictions.

Cabral Gold

Cabral Gold enters 2025 with strong momentum after delivering a positive PFS for its Cuiú Cuiú gold project in Brazil. The study outlined a high-margin starter oxide mine capable of producing 20,000 ounces per year at all-in sustaining costs below $1,200/oz, generating robust free cash flow to fund exploration across Cabral's highly prospective district-scale land package.

Alan Carter, CEO, says companies need to adjust to new market conditions if they are to weather the storm. He observes that near term producers are being rewarded.

"The model that's been pursued, particularly by Canadian-listed companies, of exploring, raising money, diluting the capital structure, and working on the assumption that if you hit something your share price will go up significantly. This model has been broken for a long time."

With over 1.2 million ounces in resources across multiple deposits and 50+ peripheral targets, Cuiú Cuiú offers exceptional exploration upside and potential for major new discoveries. Recent high-grade drill results, including 11m @ 33g/t gold at the new Machichie target, showcase the district's potential for further resource growth. Cabral's unique combination of near-term production and long-term organic growth makes it an attractive opportunity for investors seeking leverage to rising gold prices.

NorthIsle Copper & Gold

NorthIsle Copper & Gold is taking a innovative approach to developing one of the largest copper-gold porphyry systems in British Columbia. By pursuing a phased development strategy starting with higher-margin resources, NorthIsle aims to enhance project economics, lower initial capex, and deliver a substantially more robust Preliminary Economic Assessment in Q1 2025.

Sam Lee, CEO, reminds investors that high gold prices not only improves operating margins, but also reduces the cost of capital, a key influence on the balance sheet in the early days of production.

"This gold-dominant phase we're focusing on not only improves project economics but also lowers the cost of capital significantly compared to base metal projects."

The updated PEA will focus on a higher-grade subset of the overall 3.7 billion lb copper and 8.4 million oz gold resource, leveraging existing infrastructure to boost returns and accelerate timelines. NorthIsle's recent $10 million financing from supportive institutional shareholders validates the technical merits and economic potential of the project.

Revival Gold

Revival Gold achieved a major milestone in 2024 with the acquisition of the past-producing Mercur project in Utah, bolstering its gold portfolio to 6.2 million ounces across two brownfields projects in the Western U.S. The company's disciplined strategy focuses on systematically advancing its assets while minimizing equity dilution through a phased development approach targeting modest sub-$200M initial capex.

When it comes to how investors should view value, Hugh Agro, CEO, thinks time is on their side.

"Unlike a lot of other businesses, our assets go up in value with time. The value of the gold in the ground only goes up... Time is really on our side in a lot of respects."

Backed by top institutional investors owning over 40% of shares, Revival is built for long-term value creation. Revival's 2025 outlook appears bright, with the PEA underway for Mercur, an expanded exploration team pursuing resource growth, and potential initial production within three years.

Seabridge Gold

Seabridge Gold offers unparalleled exposure to the world's largest undeveloped gold-copper project, KSM, which is substantially de-risked and ready for a joint venture partnership in 2025. After over 20 years and $1 billion spent advancing KSM, Seabridge has secured key permits and indigenous support for the Tier-1 asset, with a 2022 PFS highlighting a 33-year mine producing over 1 Moz of gold and 178 Mlbs of copper annually at industry-leading all-in costs below $600/oz.

Discussions are underway with major gold and copper producers to secure a partner to fund and develop KSM through a creative, phased earn-in approach that preserves meaningful upside for Seabridge shareholders. Additional projects like Courageous Lake and Iskut provide pipeline optionality and exploration upside.

Serabi Gold

Serabi Gold is poised for transformational growth in 2025 as it executes on its three-stage strategy to optimize operations and aggressively expand resources at its high-grade Palito and Coringa gold mines in Brazil. The successful commissioning of an ore sorter at Coringa in late 2024 was a game-changer, enabling Serabi to upgrade feed grades and boost production to a targeted 60,000 ounces per year without major capital outlays.

Mike Hodgson is confident about gold's trajectory and the advantages for gold producers in 2025.

"There's no sign of abating when it comes to gold price and how that affects margins of producers."

Looking ahead, Serabi is launching its largest exploration program in a decade with an $8 million budget to drill 30,000 meters. The campaign aims to double resources from 1 to 2 million ounces to support a further expansion to 100,000 ounces per annum. With key mining licenses renewed and a proven management team executing against a clear growth strategy, Serabi offers a compelling mix of near-term production growth, exceptional exploration upside, and capital return optionality for a significant re-rating in 2025.

The Investment Thesis for Gold

For investors considering the gold market, here are a few key points to keep in mind:

• Gold remains a popular safe haven investment during times of economic or geopolitical uncertainty, as evidenced by its strong performance in 2024. As long as those macro forces persist, gold will likely continue to attract capital.
• Major gold producers are well-positioned to benefit from higher gold prices with strong earnings and margin expansion. Investing in gold equities can provide leveraged exposure to the gold price.
• The lack of major new gold discoveries is concerning from a long-term supply perspective. However, increased exploration budgets and initial resource announcements provide some optimism that the project pipeline can be replenished.
• Consider investing in gold equities with high-quality assets, strong production growth profiles, and experienced management teams with a track record of effective capital allocation.
• As with any commodity-driven investment, be aware of the cyclical nature of the gold market. Have a long-term outlook and be prepared to weather volatility.

In summary, gold remains an attractive asset class supported by favorable macro forces entering 2025. Gold miners are delivering robust earnings growth and margin expansion on higher gold prices. However, the relative lack of major new gold discoveries over the past decade raises concerns about the longer-term supply picture. Increased exploration budgets and resource announcements are an encouraging sign, but more substantial new discoveries will be needed to avoid a supply crunch in the coming years. Investors should focus on quality gold producers with strong assets and experienced management teams.

References:

1. Kuykendall, T., Dholakia, G. (October 2024). S&P Global. Large Producers' Q3 Earnings Expected to Soar Alongside Gold Prices
2. Manalo, P. (August 2024). S&P Global. Gold From Major Discoveries Grows 3%, Although Recent Discoveries Remain Scarce
3. Varghese, S (December 2024). Reuters. Gold Prices Dip as Markets Await Fresh Catalysts