Why Rising Gold Prices Don’t Mean More Gold Is Coming
When gold prices rise, it is natural to wonder why mining companies aren’t producing more gold. If the price is attractive, shouldn’t more companies be opening mines and bringing new production to the market?
To better understand what stands between a gold discovery and actual production, I spoke with Dr. Mudder, a cyanide and gold mining expert and environmental science and engineering consultant. We discussed the challenges of finding gold, financing new mines, navigating environmental regulations, and determining whether a deposit can be mined profitably.
Our conversation revealed why higher gold prices do not necessarily translate into more gold production, at least not anytime soon.
Why Is Gold So Difficult to Find?
Danilo: What does it actually take to find gold in the ground?
Dr. Mudder: Finding a deposit is only the beginning. Companies have to explore a large area, drill hundreds of holes at different depths, collect and analyze samples, and use that information to develop a mathematical model of the deposit. That model helps mining engineers determine whether the gold can be extracted economically not only now but in the future. The company cannot accurately predict the actual quantity of ore, its grade, or the price of gold over decades. There are always risks.
Gold is no longer associated with rich veins that can be easily extracted as they were a century ago. In many deposits nowadays, small amounts of gold are dispersed throughout enormous volumes of rock. Rock is often located in difficult terrain in mountainous regions.
Dr. Mudder offered a memorable comparison during our conversation: imagine a swimming pool filled with a million white marbles and only one black marble. Finding that single black marble illustrates the challenge of locating valuable material among so much ordinary rock.
The numbers reinforce the point. Research accompanying our conversation puts average gold content in ore at roughly one to two grams per metric tonne of rock or 0.04 ounces per tonne. In mining, we use the term “tonne” based on the metric system. One or 1 gram per tonne is equal to a concentration of 1 part per million. The metric tonne or tonne weighs about 2,200 pounds, which is equal to 1,000 kilograms or 1 million grams. This is a long tonne, while the US ton, which is 2,000 pounds, is a short ton. As one can see, a massive quantity of rock must be mined to yield a very small amount of gold. And the waste rock disposal sites are massive, as are the open pits from which it is taken. So one part per million is a very small number.
Mining companies must move and process enormous amounts of rock while paying for fuel, labor, equipment, waste management, and environmental compliance. Finding gold is only the first step. The real question is whether enough can be recovered to justify the cost. Mining is transitioning to automation and the use of autonomous trucks to save money.
If Gold Prices Are High, Why Aren’t More Mines Opening?
Danilo: With gold prices where they are, why aren’t we seeing a rush of new mines?
Dr. Mudder: The two big time factors are permitting and financing. It takes a long time to get a mine permitted, and companies have to find someone willing to provide the money to develop it. Banks may be reluctant to lend hundreds of millions of dollars or billions of dollars for a project that will not generate revenue for many years.
That creates a challenge for mining companies. They must commit substantial capital long before they know what gold prices will be when production begins. A project that looks profitable today could face a very different economic environment by the time the mine is operational.
Permitting usually requires the company to meet all of the requirements of NEPA, the National Environment Policy Act originated under Nixon and it must also obtain a federal wastewater treatment discharge permit from the USEPA. The overarching timeline for the entire project involves up to 20 years to start a new gold mine.
Companies must evaluate the deposit, complete feasibility studies, secure financing, obtain permitting approvals, build infrastructure, and prepare the operation for production. Higher gold prices can make a project more attractive, but they cannot eliminate the time and investment required to bring it online.
Each of these components can take years to complete. To be frank, there are many entities which are committed to stopping mining projects for varying reasons. Permitting to achieve the two goals mentioned above can take 10 years alone. This is why instead of attempting to permit a new mine, larger companies attempt to buy smaller operating mines to increase their production or expand their own operations.
Since the ore grade is so low, a company must conduct its exploration carefully to ensure they have delineated the deposit both in quantity and quality. This perceived gold value must be compared to the total capital and operating costs for years of operation even though gold prices are rising. All costs are rising. There are monumental risks when investing a billion dollars of other peoples’ money. In addition, the length of the permitting and closure phases often discourages companies from moving forward with a new project.
How Much of That Time Is Spent on Permitting?
Danilo: Is most of the waiting process spent on permitting and environmental compliance rather than construction?
Dr. Mudder: Permitting and environmental compliance can account for a major portion of the timeline as mentioned previously. As mentioned upwards of ten years might be needed to get through the entire permitting process.
A mine needs more than a promising deposit to provide funding. Depending on its location and design, the project may require environmental reviews, water approvals, infrastructure, public input, and consultation with affected communities, government agencies, and tribal groups. Other regulatory approvals or legal challenges can add further complications.
Water management is very important. Depending on the operation, companies may need a large water supply and treatment facilities to allow environmentally acceptable discharge water into regulated waterways. Meeting very stingent water-quality requirements can add technical challenges, expense, and time to the process.
Construction cannot simply begin because a company has identified gold underground. The project must progress through the necessary technical, financial, and regulatory steps.
This helps explain why new mine production does not respond immediately when gold prices rise. Even a project that moves forward successfully today may be years away from contributing meaningful production.
By the way there is a new Senate Bill that would introduce several streamlining approaches to permitting, shortening the time frame and complexity. If the Senate passes it, it will go to the House for final approval.
What Makes Gold Mining So Expensive?
Danilo: What happens when the gold is there, but it is difficult or expensive to extract?
Dr. Mudder: The company has to determine whether it can recover the gold economically. It needs enough information about the deposit to build a model, evaluate the operation, and prepare a feasibility study. Ultimately, the economics depend on the deposit, the costs, and the price of gold.
The expense of mining goes well beyond digging material out of the Earth. Companies must pay for equipment, workers, fuel, electricity, processing, infrastructure, and waste management. They also need to plan for the eventual decommissioning and closure of the operation when there is no more revenue.
The research accompanying our conversation deals with mining expenses and revenue into categories such as direct operating costs, sustaining capital, royalties, corporate overhead, reclamation, exploration, and growth investment. Those costs can vary substantially depending on the deposit, mining method, and location.
A company may identify gold underground but still conclude that extracting it is not financially viable. The market price of gold is only one part of the equation. Before committing to a new mine, a company must determine whether the project can support its full financial and operational demands. For example, the gold may be associated with reduced sulfides which can once exposed and begin oxidizing produce acid mine drainage and further pollution costing a considerable amount of money that may require years of treatment.
Are We Running Out of Gold?
Danilo: Based on current reserves, are we running out of gold?
Dr. Mudder: The amount of gold considered economically recoverable is finite, but that figure can change. Higher gold prices may make additional deposits viable, and new discoveries or improvements in extraction technology can change what companies are able to recover.
The research accompanying our conversation cites an estimated 64,000 tonnes of economically recoverable gold reserves worldwide, based on a 2025 U.S. Geological Survey estimate. This is another 20 years of potential global gold mining available. Comparing that figure with annual production helps illustrate the scale of identified reserves relative to the amount of gold being mined. Keep in mind on average the gold value in known deposits rarely exceeds 0.05 ounces per tonne or 2 grams per tonne.
However, that comparison should not be treated as a countdown to the end of gold mining. Reserve estimates change as exploration advances, technology improves, costs shift, and market prices alter the economics of a deposit.
The important distinction is between gold that exists underground and gold that can be extracted profitably under current conditions. Those are not necessarily the same thing. But as the value of gold increases not as a a commodity but as a currency attempts will be made to find it and extract it. Central banks around the world keep buying it for their countries.
What Does This Mean for Gold Investors?
Higher gold prices can make mining projects more attractive, but they do not mean companies can quickly increase production. As we have discussed, new mines require years of technical work, major financial commitments, environmental planning, and regulatory approvals. Even when prices are favorable, those practical limitations remain.
Mine production is also only one factor affecting the gold market. Recycling, new discoveries, technological improvements, and changes in demand can all influence available supply and prices. And changes in the global economy can as well as debt increases internationally. Slow mine development does not guarantee higher prices, but it helps explain why the supply side of the market cannot respond immediately to changing conditions.
My conversation with Dr. Mudder reinforced an important point: the journey from a promising deposit to a finished ounce of gold is far more complicated than the final product suggests. Finding the gold is only the first step. Recovering it safely, economically, and responsibly is the much longer challenge. However, there seems to be a future for the value of gold and the need to keep producing it.
