Buoyed by high prices, demand from Asia and a weak U.S. dollar, the gold industry has flourished since prices bottomed out in 2000 and probably is only halfway through the current boom, a leading industry official said Wednesday.

“Overall, our market is strong and will remain strong for some time to come,” said Ronald Stewart, senior vice president for exploration for Canada-based Kinross Gold Corp., the eighth-largest gold producing company in the world.

“We’re probably in the middle innings of this current route,” he said in a keynote address to the 112th annual meeting of the Northwest Mining Association.

The 1,500-member group is meeting for the first time outside of Spokane, Wash., to try to draw more involvement from members in Nevada, the third-largest producer of gold in the world behind South Africa and Australia, sponsors said. The theme of the three-day convention is “Sustaining the Boom.”

“I believe we are in a super-cycle of extended high metals prices spurred by demand from China and to a lesser extent India,” said Laura E. Skaer, the association’s executive director.

“Most up cycles historically have been based on development and consumption primarily in the United States,” she said.

But now, the U.S. population of 300 million is dwarfed by China’s 1.3 billion and India’s 900 million “and they’ve got a taste of what we have, the fruits of civilization, like computers and cell phones,” Skaer said.

Stewart said in his speech that the industry’s challenges include inflation, shortages of labor and supplies, and barriers that discourage entry into the business, such as the permit process, capital costs and access to property.

The price of gold is about $640 an ounce today after bottoming out around $275 an ounce.

“We were all trying to figure out how we were going to stay alive,” he recalled.

Since 1800, the industry’s average boom and bust cycles have averaged about 10 years — the last downward trend lasting 14 years from 1986-2000, Stewart said.

While production levels are down, the value of gold being purchased today is up 47 percent from a year ago, he said.

“So there is still a considerable amount of demand there for the product, and we see good reason to believe this demand will continue,” Stewart said.

He predicted the industry will continue to consolidate, with competitive advantages shifting from the largest companies to those with the most growth.

“Size is no longer the most important value driver in our business,” he said.

From 2000-06, there have been almost $40 billion in consolidation transactions involving gold alone, he said. This year, it’s close to $16 billion, he said.

“Ultimately, it strengthens our industry. It shows stakeholders we are going to be in business a long time,” he said.

The industry is spending $7.1 billion a year on exploration, up from about $2.6 billion a few years ago, he said. About half of that exploration is for gold, 30 percent for copper and other base metals and about 20 percent for other minerals, such as diamonds and uranium, he said.

Inflation is taking its bite with overall costs up about 25 percent, including a 25 percent increase in the price of steel and energy costs about 40 percent higher, Stewart said.

“The industry’s challenge is to try to maintain a low-cost profile,” he said.

The costs of regulation and environmental protection also are rising, he said.

“In the court of public opinion, we are ranked along with our lowest or poorest performers. We owe it to ourselves to police ourselves,” he said.

Stewart said the continued appetite in the Asian market for U.S. dollars is keeping the value of the dollar higher than it really should be in a free market. But that could change, he said, noting that China has only 1.5 percent of its reserves in gold bullion, compared with most of Europe which has about 15 percent in gold reserves.

If China were to raise its gold reserves to the 15 percent level, it would have to purchase 8,000 tons of gold, he said.

“So all the signals are the gold price could be higher or really much higher. All the factors are there.”

On the Net: Northwest Mining Association: http://www.nwma.org/

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