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Canada and The Mining Of Gold In The Americas

Canada and The Mining Of Gold In The Americas

Posted by Bruce McDougall on February 16, 2014

Looking at the ring on your finger or the medal around the neck of an Olympic competitor, you’d hardly suspect that the world consumes almost 4,500 tonnes of gold every year. But according to a study commissioned recently by the World Gold Council in London, gold not only signifies victory and keeps people happy on their birthdays, it also contributes enormously to the economy of its major producers and provides jobs directly for more than half a million people.

Six countries account for more than half of the world’s gold production, according to the study, conducted by PircewaterhouseCoopers LLP, and China alone accounts for almost 15%. The next five largest producers are Australia, the U.S., Russia, Peru and South Africa, but gold production has grown most rapidly in recent years in Mexico. Between 2007 and 2012, Mexican gold production rose by 118%.

Among the world’s top 15 producers of gold, Mexico still ranks 9th, behind the U.S. in 3rd , Peru in 5th and Canada in 7th place, but ahead of Brazil in 12th and Argentina in 14th. But some analysts expect that Mexico will become a global superpower among gold producers within the next decade. Already, the industry employs 16,000 people in Mexico, more than Peru and Argentina combined. Indirectly, another 30,000 people in Mexico earn a living from the gold industry.

Among other things, the rapid growth in Mexican gold production demonstrates clearly the economic impact of government tax policies. Primarily because of taxes and royalties, the production of an ounce of gold in Mexico costs an average of US$325 compared to an average of $649 an ounce in the rest of the world.

Ironically, the more efficiently a country develops its gold resources, the fewer people the industry employs. Peru, for example, stands fifth among the top 15 producers, but in terms of employment in the industry, it ranks 12th

That’s not to say that gold doesn’t contribute enormously to Peru’s economy. It accounts for 21% of Peru’s exports, by value. In other top-producing countries, it accounts for about 2% of exports.

As for demand, five countries account for two-thirds of the gold consumed every year. India alone consumes almost one-third, followed by China, the U.S., Turkey and Thailand. More than 40% of gold produced every year is used in jewellery. Another 35% is purchased by investors in the form of gold bars, coins and gold-backed exchange traded funds. Central banks purchase 12%, and industry uses another 10%, particularly in electronics, healthcare services and pharmaceuticals.

Manufacturing and processing of gold, according to the World Gold Council study, directly generate as much as USS110 billion of economic value, equivalent to the GDP of Bangladesh or half the GDP of Hong Kong or Singapore.

The gold industry also generates billions of dollars in taxes, royalty payments, licence fees, export duties and other forms of economic income. In 2012, royalty payments alone contributed $4.1 billion to the economies of the top 15 gold-producing nations. A single company, the Canadian firm Goldcorp Inc., paid US$442 million in taxes in Mexico and another US$225 million in Canada.

“The mining sector is facing a barrage of converging challenges,” says Randall Oliphant, Chairman of the World Gold Council and Executive Chairman of New Gold Inc. in Toronto, “and increasing costs, ever higher expectations from a wide range of stakeholders and a gold price [that] could call in to question the viability of some projects and lead to a contraction in supply.

“Demand, however, is increasing, fuelled by expanding middle classes in Asia, diversification of reserve assets by central banks and a growing desire for physical gold among many Western savers.”

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