"Despite the Barrick-Newmont merger's collapse several weeks ago.
Gold Scarcity, high extraction costs makes gold mining consolidation inevitable.
Gold Scarcity, high extraction costs makes gold mining consolidation inevitable.
Denver-based Newmont has said Mr. Thornton quashed the combination. Barrick and Newmont declined to comment on the collapsed merger.
No matter who killed the deal, gold miners face a troubled landscape.
The depletion of global gold mines, and the resulting increase in extraction costs, is one of the main forces pushing gold miners to combine as they look for efficiencies or to gain access to rivals' high-grade deposits.
"There is every reason to do that deal, and the reasons not to do it weren't geology, but man-made," said Douglas B. Groh, a fund manager at Tocqueville Asset Management LP, which owns Newmont stock. "The nature of geology is such that gold does not occur in large volumes, but the capital exploiting it is robust."
The gold industry ramped up exploration as prices increased by a factor of six from 2001 through 2012 to $1,750 a troy ounce. Prices since have tapered off to around $1,300 an ounce.
Discoveries also have tapered off. In 1995, 22 gold deposits with at least two million ounces of gold each were discovered, according to SNL Metals Economics Group. In 2010 there were six such discoveries, and in 2011 there was one. In 2012: nothing.
Even in Nevada, which mines around three-quarters of all U.S. gold, production has dropped a third since peaking in 1998. Around 40% of Newmont's and Barrick's production comes out of Nevada, with that possible economy of scale a big factor in their proposed merger.
"Deposits are simply harder to discover," said John Muntean, an associate professor of mines and geology at the University of Nevada.
The discovery of gold is influenced by a volatile set of factors, including price and how much companies are willing to spend on exploration. The higher the price of gold, the more economical it is to mine lower-grade deposits.
That was a reason behind the 35% decline in the grade of gold held by miners from 2001 to last year. Lower grades of gold require digging up more earth to find the metal so are more expensive per ounce. The cost of mining an average ounce of gold rose to $745 in 2012 from $280 in 2005, according to BMO Capital Markets".
