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Miners with Long-Life Assets Are Harder and Harder to Come By: McKinsey

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(Kitco News) -  The gold industry is facing a looming production crisis after years of capital starvation has shrunk gold miner reserves, says Ken Hoffman, materials expert at McKinsey & Company.  

In early March, Kitco interviewed Hoffman at PDAC in Toronto, where his firm released its study looking at the gold mining reserve crisis.

"After the downturn a few years back, mining companies have abandoned exploration," says Hoffman. "You have seen capital starvation all along the value chain from people discovering mines all the way up to the majors."

The authors of the McKinsey study say that gold companies were on a merger and acquisition "frenzy" at the start of the decade. Annual acquisitions peaked at US$38 billion in 2011, and the average price paid per ounce reserve was 300% higher than a decade earlier. 

Falling commodity prices and the consequent impairments and write-downs have left the industry where it is today: starved for growth.

Hoffman says investors are now looking for miners with long-life assets that can get them to the future. 

"And those are becoming harder and harder to come by," says Hoffman.

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