Barrick's Munk Says Gold Supply Crucial to Prices

Thu April 28, 2005 3:43 PM GMT-04:00

By Frank Pingue

TORONTO (Reuters) - With few major gold projects coming on stream, increasingly tight supplies of the precious metal will play a bigger role in driving prices higher, Barrick Gold Corp.'s founder and chairman said on Thursday.

"It's going to be a gradually increasing factor that will be more and more realized and become a really important determinant of the gold price," Peter Munk said after Barrick's annual meeting.

"If you cannot come up with significant new mine development, which I simply don't believe you can, and if demand stays constant, it can become a significant contributor to an upward spike in the gold price."

Most industry experts consider the U.S. dollar as the key driver of gold prices at the moment. A higher greenback makes gold more expensive for buyers holding foreign currency as bullion is priced in U.S. dollars.

Part of the reason for the current dearth of new gold projects has been the difficulties many companies encounter when trying to get permission to develop mines in areas where they have already found deposits.

Munk went as far as pointing a finger at countries like Argentina, Romania, Turkey and Spain which he said have refused to approve major developments.

"When you do have an ore body discovery, in half the countries today you cannot get them permitted," he said.

"And when you do get them permitted, the time it takes is four or five times longer than it used to and the costs are increasingly making the average mine nonviable."

Unlike many of its competitors, Barrick has four big new projects on the go that will increase annual production by 40 percent in 2007.

The company's Tulawaka mine in Tanzania began production in March, its Laguna Norte gold project in Peru will follow suit in mid-June, while the Veladero mine in Argentina and the Cowal project in Australia will start production at the end of 2005 and early 2006 respectively.

The new projects could give Barrick an edge over its rivals, which are mostly dealing with older mines that become more costly to operate as they go deeper and use more fuel.

Munk would not offer a forecast for gold prices, but he was adamant in saying that people are overlooking the importance of supply.

"Mines, every one of them, have a finite amount of reserves ... the mine ceases to produce and they need replacement," he said. "If the supply side is impossible to replace then you can draw your own conclusions."

Earlier on Thursday, Barrick reported slightly better than expected first-quarter earnings as it managed to shake off the effect of cost pressures from higher oil prices and increased operating costs and take advantage of higher bullion prices.

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