Gold Market Primer
Mine production
April 2018
Formal, large-scale gold mining is a complex
undertaking. It is also geographically diverse,
occurring on all continents apart from
Antarctica.
This primer serves as an introduction to the gold mining
process. It gives an overview of modern gold mining,
highlighting the scale and breadth of the industry; looks at
the life-cycle of a mine; and explores the way in which gold
miners can sell their gold production.
Pinos Altos mine, Mexico
Source: Agnico Eagle Mines
www.gold.org
Summary
 Large-scale gold mining is extremely capital-intensive,
requiring high levels of mechanisation and expertise.
 The life-cycle of a gold mine is long. Before any gold can
be extracted, significant exploration and development
needs to take place. On average, it takes between 10-20
years before a mine is ready to produce material that can
be refined.
 When bringing gold to the market, mining companies
have two options. They can either sell newly mined gold
now at the current price or sell gold which has not yet
been mined (i.e. still in the ground) now.
 Responsible gold mining can have a significant positive
impact, both on the economies of the countries in which
gold mining takes place, and on the lives of the citizens
of those countries.
1
Modern gold mining
Gold mining describes the process of extracting ore –
metal-rich rock – from the Earth’s crust. It predominantly
takes place in areas where there is a significant
concentration of gold-bearing ore (also known as the ore
body).
Gold mining is a global business with operations on every
continent except Antarctica. The vast majority of the
world’s gold was mined in the modern, post-war era. And
as the industry has evolved, it has become more
geographically diverse. More countries have emerged as
substantial gold producers over recent decades, which
means mine supply has become less geographically
concentrated and therefore more stable (Chart 1).
Chart 1: Distribution of mine production by region
Source: GFMS, Thomson Reuters; World Gold Council
Gold mining operations vary greatly in scale and
technological sophistication. They range from multinational
companies engaged in formal, large-scale mining (LSM) to
artisanal and small-scale mines (ASM) extracting small
quantities of gold. This note focuses on LSM. For more
information on ASM, please visit our website.1
LSM is extremely capital-intensive, employing high levels of
mechanisation and expertise to mine vast areas both on
and below the surface. (Today, around 60% of the world’s
mining operations are surface mines while the remainder
are underground mines.) Costs can vary widely according
to a range of geological, metallurgical, infrastructural and
operational factors. And costs can also be affected by the
wider socio-political and regulatory environment in host
countries.
It is also a complex industry. Responsible miners need to
address a wide range of requirements as part of their day-
to-day business operations, including: operation of the
1 www.gold.org/who-we-are/our-members/responsible-gold/artisanal-gold-
mining
2 www.gold.org/who-we-are/our-members/responsible-gold
Market Update | Mine production
mine; health and safety; social engagement of local
communities and government; as well as managing
environmental and economic issues. Leading LSM
operators have been at the forefront of industry
developments to ensure sustainable, transparent and
accountable practices are implemented.2
The economic benefit of gold mining
Gold mining companies are a major source of income and
economic growth, with an important role in supporting
sustainable socio-economic development.
In 2013, gold mining companies contributed more than
US$171.6bn to the global economy through their
production activities and expenditure on goods and
services.3 This is more than the combined gross domestic
product (GDP) of Ecuador, Ghana and Tanzania, or close to
half of the GDP of countries such as South Africa and
Denmark. In eight of the top 30 gold-producing countries,
the production and procurement activities of gold mining
companies generated over 10% of GDP. In two of these
countries, Papua New Guinea and Mali, this figure rises to
over 25% of GDP.
Globally, gold mining companies directly employed over
one million people in 2013, with over three million more
people employed as a result of the industry’s procurement
activities. Gold mining companies are also important in
employing local people in their operations: in most regions,
over 90% of the employees at gold mining operations are
local workers.
How much gold has been mined?
The best estimates currently available suggest that, as of
December 2017, around 186,790 tonnes of gold have been
mined throughout history – of which around two-thirds
were mined since 1950.4 And since gold is virtually
indestructible, this means that almost all this metal is still
around in one form or another.
It may sound a lot, but it isn’t. If every single ounce of this
gold were gathered together, the resulting cube of pure
gold would only measure around 21 metres on each side
(Figure 1).
3 Social and economic impacts of gold mining, World Gold Council, June 2015
4 GFMS, Thomson Reuters, Metals Focus, World Gold Council
2
Figure 1: Total above ground stocks of gold
Source: Metals Focus; GFMS, Thomson Reuters; USGS; World Gold Council
Each year, global mining adds approximately 3,000 tonnes
to the overall above-ground stock of gold. While gold
production has shown an upward trend in the last 8-10
years, this is likely to level off in coming years.
And how much gold remains in the ground?
Mining companies estimate the volume of gold that
remains in the ground at each of their mining projects.
These estimates can be split into two categories: reserves
– gold that is economic to mine at the prevailing gold price;
and resources – gold that will potentially become economic
to mine, subject to further investigation or at a different
price level.
The below-ground stock of gold reserves is currently
estimated to be around 57,000 tonnes by the US
Geological Survey.5
The volume of gold reserves can, by definition, be
calculated with greater certainty. But even so, they are not
static and accurately estimating the size of reserves is no
easy task. The size of reserves may decline due to
extraction (known as depletion) or if the feasibility of
extraction diminishes. They may also increase as additional
deposits are developed, new technology or economic
conditions improve economic feasibility, or as current
deposits are more thoroughly explored.
Other facts that may influence the estimate of gold reserve
volumes include:
 the price of gold
 the cost of mining inputs (which affect whether gold
deposits are economic to mine)
 exploration and new discoveries
 prior geological survey coverage and capabilities
5 2017 Mineral Commodity Summary, US Geological Survey
6 www.gold.org/about-gold/gold-supply/how-gold-is-mined
Market Update | Mine production
How gold is mined: the
project life-cycle 6
People in hard hats working underground is what often
comes to mind when thinking about gold mining. Yet
mining the ore is just one stage in a long and complex
process. Long before any gold can be extracted, significant
exploration and development must take place to determine
the size of the deposit, as well as how to extract and
process the ore efficiently, safely and responsibly. On
average, it takes between 10 and 20 years before a mine is
even ready to produce material that can be refined.
Exploration (1-10 years)
Exploring for gold is a complex process. It requires
significant time, financial resources and expertise in several
disciplines, such as geology, geography, chemistry and
engineering. Even then, the likelihood of a discovery
leading to a mine development is very low. In fact, only
around 10% of global gold discoveries contain sufficient
gold to mine.7
Mining companies will often begin by investigating areas
where the make-up of the local geology indicates the
possible presence of gold. (Often, gold is found when there
are concentrations of other minerals such as copper or
silver.) This work might be conducted by companies which
focus specifically on exploration, known as junior miners.
After an area has been identified as a potential deposit,
further investigative work will be conducted – such as
drilling for samples – to determine the type and grade of
minerals contained in the ore. Once more is known about
the potential deposit and the local geology, the ore body
can be modelled and its feasibility assessed. This will
typically involve sophisticated computer programs, which
help determine not only the size and structure of the ore
body, but also the most efficient and economical way to
mine it.
The possible social and environmental impact of mining the
ore body will be identified and addressed. Consultations
with all stakeholders – including local communities and
governments – will be conducted. Impact assessments will
continue throughout the exploration phase.
Development (1-5 years)
The developmental stage involves the planning and
construction of the mining project. Mining companies must
obtain appropriate permits and licenses before they can
begin construction. This will generally take several years,
although it can vary depending on factors such as location,
regulatory requirements and ore processing needs. The
structure of the mine - for example, whether it will be
7 www.newmont.com/operations-and-projects/mining-education/the-mining-
process/default.aspx
3
underground or open pit (and in some cases both) – will
depend on the size and shape of the ore body.
And construction may not be confined to the mine itself.
Frequently, mining companies develop local infrastructure
and amenities to support logistical and operational needs,
as well as employee and community welfare.
Source: Agnico Eagle Mines
 Surface mine: For ore bodies which are considered
relatively shallow (usually ≤400m deep) and uniform,
surface mining is preferred. This involves removing rock
from the surface of the Earth layer-by-layer. This is less
costly than an underground mine as it does not require
deep-level excavation.
 Underground mine: If surface resources are exhausted
or the ore body extends deep into the Earth, mining goes
underground. Construction of such mines will involve
building a complex network of tunnels and shafts to both
access and transport the ore, and support ventilation
systems.
Figure 2: The project life-cycle
Source: World Gold Council
Market Update | Mine production
Operation (2-100+ years)
Once development is complete, the mining project will
begin operating: extracting metal-rich ore from the deposit.
This can be done in various ways, depending on the rock
structure. Drilling and blasting – more common for mining
metals – is used for harder rock, while digging can be used
for softer rock.
Once the ore has been extracted, further processing is
needed to recover the gold (as well as other valuable
minerals). Larger mining operations use a combination of
crushing and leaching to break down large rock and strip it
of high-value minerals such as gold, silver and copper.
Mining companies will use stringent controls to ensure high
standards of health and safety, as well as minimising
environmental impacts.
After the processing stage, any metal recovered will be
formed into unrefined bars known as doré. These unrefined
bars will contain not only gold, but other metals, such as
silver or copper, which have been extracted. The proportion
of each metal can vary between bars, although gold will
generally account for 60-90% of the bar. These will then be
sent to a refinery to separate each pure metal.
Given the scale of operations involved, it takes time to alter
mine plans in response to changes in external factors, such
as the price of gold or inputs like oil. These factors can
determine which areas of an ore body are profitable to
mine. In times of higher gold prices, mining low-grade ore
becomes profitable as the higher gold price will offset the
cost of extracting and milling a greater volume of ore.
When the price is lower, it might only be profitable to mine
areas of higher-grade ore.
4
Closure and decommissioning (1-5 years)
After a mine has ceased operations, possibly because the
ore body is exhausted or the remaining deposit becomes
unprofitable to mine, work then focuses on its
decommissioning and rehabilitation. This is a complex
undertaking. The mining company will not only need to
decommission the mine safely, it will also usually be
required to return the mine site, as closely as possible, to
its original environmental state. This will involve tasks such
as removing waste and hazardous material, ensuring water
quality is maximised and the reinstatement of indigenous
vegetation.
Mine plans will also consider the social impact on local
communities of the closure of a mine.
Post-closure (10+ years)
A mining company will be required to monitor the mine site
long after the mine site has been closed to ensure the
successful rehabilitation of the land. This typically takes
several years.
Gold producer hedging
and de-hedging
Mining is the main source of gold to the market. On
average, mine production accounts for two-thirds of total
supply each year. (The remaining third comes from
recycling.) When bringing this gold to the market, mining
companies have two options, namely: sell newly mined
gold now (at the current price); or sell gold which has not
yet been mined (i.e. still in the ground) now.
Gold hedging is the process by which mining companies
forward-sell future mine production at a contractually-
specified gold price. They are guaranteed to receive this
price for their gold when it is produced, regardless of the
prevailing gold price at that time. Gold miners may choose
to hedge their production to protect themselves against
price volatility. By ensuring a fixed price for their future gold
production, miners can guarantee a portion of their cash
flow to cover their ongoing expenses.
Conversely, gold de-hedging describes the activity of
unwinding (or closing) these forward sale commitments.
This enables the mining company to retain ownership of
their future production and – with no contractual sales price
– allows them to fully capitalise on a future rising market.
This obviously makes most sense when there are
expectations of a sustained rising gold price.
Since the mid-2000s, the global hedgebook – the total
amount of gold committed via forward sale agreements –
has shrunk to trivial levels. In the past five years, hedging
has typically been used by junior or mid-cap mining
Gold Market Primer | Mine production
companies to fund project development or manage debt.
These arrangements are now often of a far smaller scale
and of shorter duration than hedging agreements in
previous decades (Chart 2).
Importantly, the use of hedging does not alter the total
amount of gold supplied, but will affect the timing of when
this supply will reach the market. The hedging transaction
will serve to increase supply (by the amount
Chart 2: Global gold hedgebook volume
Source: Metals Focus; GFMS, Thomson Reuters; World Gold Council
hedged) to the market now – out of available above-ground
stocks – rather than when the gold is actually mined.
Royalty and streaming
While hedging is one way in which mining companies can
monetise future gold production, a range of other sources
of funding has emerged over the past decade. The growing
significance of royalty and streaming deals offer mining
companies, particularly those developing a project, a secure
source of capital for a portion of their future production.
A royalty agreement involves the mining company receiving
an upfront payment in return for the counterparty (a royalty
company, or maybe another mining company) having the
right to receive a percentage of future gold production from
the mining operation. A metal streaming deal involves a
counterparty (a streaming or royalty company) receiving the
right to purchase gold production – at a price determined
when the agreement is struck – in return for a payment.
The primary difference between a royalty and a stream is
that the latter includes fixed ongoing payments for each
ounce of gold purchased. Also, unlike hedging, royalty and
streaming deals may not bring gold to the market before it
is mined.
5
Glossary of key terms
Deposit: Naturally occurring concentrations of minerals
which are large enough to have economic value.
Geology: A branch of science which examines the
substance of the earth, its physical structure and the
processes which impact them.
Grade: The amount of gold contained in an ore body,
commonly quoted in grammes per tonne.
Gross Domestic Product: A broad quantitative measure of
economic activity of a country; the monetary value of all
goods and services produced over a specific time period.
Leaching: A process used to extract minerals from ore
through chemical reactions.
Metallurgy: A branch of science focused on the properties
of metals, as well as their production and purification.
Ore: A type of rock containing sufficient quantities of
minerals – such as metals – that can be extracted
economically.

Gold Market Primer | Mine production 6

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Market Update | Mine production 7