By Alden Bentley
TORONTO (Reuters) - The gold rush of 2003 is on, sort of.
On the streets of Canada's gold capital this week, the industry was buzzing about higher prices unleashing venture capital for new exploration to counter a decline in world gold mine production, but some prospectors say investment has not yet reached the flood stage.
Indeed, excitement about the strong gold market was audible among the hundreds of mining and development companies gathered here for the annual Prospectors and Developers Association of Canada (PDAC) conference.
But experts say bullion prices, while heading in the right direction, remain too low to bring new mines on stream in time to make up for a looming supply shortfall, as established mining companies work through reserves in coming years.
"There is more talk than money," said Charles Thorman, a PhD geologist who said his company is exploring a promising property in Brazil. "It hasn't broken loose yet."
Conference organizers were gleeful at the turnout this year -- more than 7,000 registered delegates and perhaps 10,000 wandering around the vast convention center here.
There are at least 100 more booths than last year, PDAC said, with 505 exhibits on precious metals, base metals and gems set up at the investment forum and trade show.
"It's pretty crowded. Lots of deals going on in back
rooms," said Craig Nelson, senior vice-president of exploration
for Gold Fields Ltd.
Developers hope to secure a deal with a senior producer, who would then get rights to most of the gold if the project works out. Many will probably go home empty handed.
Some projects may not look viable no matter where the price of gold goes.
Nelson told Reuters there is a big shortage of advanced-stage projects around the world. "It's going to take three or four or five years before we start getting a crop of new mines coming out of exploration," he said.
The price of gold bullion rallied to $388.50 an ounce early last month, its highest in more than six years.
Profit-taking brought it back down to its current $347, but the threat of war in Iraq, the fall in the U.S. dollar to multiyear lows and cheap U.S. deposit rates are keeping gold attractive to investors as a safe-haven and alternative currency.
Higher gold prices are making it feasible for gold
companies to speed up marginal projects. Vancouver-based Placer
Dome
"This year we have budgeted about 90,000 ounces of production," Placer CEO and Chairman Jay Taylor told Reuters in an interview on the sidelines of the conference. "I would envisage a ramp-up over the next 24 months to about 300,000 ounces."
According to Bruce Alway, an analyst with precious metals research firm Gold Fields Mineral Services (GFMS), gold has not yet appreciated enough to stop a projected decline in mine production after a slide in gold prices in the 1990s forced many uneconomical mines around the world to close.
In Sunday's opening presentations, Alway said his calculations showed that, even at an average price of $375 an ounce, gold mine output would drop 25 tonnes year to year. Gold at $325 could mean a 100 tonne drop.
GFMS says world gold production was about 2,600 tonnes in 2001 and an estimated 2,543 tonnes last year.
The conference was held against a backdrop of market uncertainty over if and when Washington will deliver on its threats to launch a war to disarm Iraq and oust President Saddam Hussein. The shooting was expected to start any day.
Everyone was asking how much of gold's run up was due to the Iraq crisis and how much was due to an improvement in longer-lasting economic fundamentals for the metal.
"I heard numbers like $25 an ounce related to Iraq," said Nelson of Gold Fields Ltd.
Bob Buchan, chief executive of Toronto's Kinross Gold Corp.
But he predicted that gold would be higher in two months than its current price. "I believe the trend is up and believe most of the war premium is out of the metal price."
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