Why the Money Stopped
Flowing Underground

Gold trades above $5,000. Exploration spending is declining. In the previous article, we quantified the gap — record prices, collapsing discovery rates, a grassroots exploration share that has fallen from 50% to 19%.¹ The paradox is clear.

Here we explain why it exists.

The exploration deficit is not a market failure in the traditional sense. It is the predictable result of three interlocking structural forces: corporate capital allocation decisions, institutional investor retreat, and regulatory friction. Each reinforces the others. Together, they have created a system in which the industry's stated goal — finding and developing new gold deposits — is structurally underfunded even at the highest gold prices in history.

The Capital Allocation Trap

After the commodity price crash of 2011 to 2015, the global mining industry underwent a collective reckoning. Writedowns exceeded $100 billion across the sector.² Executive teams were replaced. Boards demanded a new philosophy: capital discipline.

The strategy worked — on its own terms. Mining equities regained institutional credibility. Balance sheets improved. Free cash flow margins expanded.

But capital discipline, applied rigidly over a decade, has a cost that does not appear on any quarterly earnings call. It starves the exploration pipeline.

Approximately 60% of major gold miners paused or reduced their dividends during 2020 to 2023, yet maintained or expanded share buyback programmes throughout.³ The preference is revealing. Buybacks return capital to shareholders and reduce share count. They do not find gold. They do not extend mine life. They do not replace depleting reserves.

The industry chose buybacks. Buybacks do not drill holes.

Meanwhile, median all-in sustaining costs (AISC) reached $1,456 per ounce in Q3 2024, up 9% year-over-year.⁴ As AISC climbs, the margin available for discretionary exploration spending compresses — even as the gold price rises.

The result is a paradox within the paradox. Record gold prices produce record cash flows. Record cash flows fund record shareholder returns. Record shareholder returns leave record-low exploration budgets. The money flows up, not down.

The Institutional Exodus

The second structural force is the retreat of generalist investors from mining equities.

ESG screening criteria now routinely exclude extractive industries from investment mandates. The most responsible mining company and the least responsible mining company are treated identically: both are excluded. The frameworks punish the category rather than differentiating within it.

The practical consequence falls hardest on junior exploration companies. Juniors have historically been responsible for 60% to 70% of major gold discoveries.⁵ Their business model depends entirely on equity capital markets — they have no revenue, no cash flow, and no alternative funding sources.

The companies most likely to make the next major discovery are the ones least able to fund the work.

There is a second layer of institutional reluctance: memory. Many fund managers who allocated capital to mining in the 2010 to 2012 boom experienced severe losses in the subsequent downturn. Those losses created institutional scar tissue. Even with gold at $5,000, the instinct is caution.

The Permitting Squeeze

The third structural force is regulatory. It takes longer to permit a mining project today than at any point in the modern era.

This is not an argument against environmental regulation. Responsible resource development requires rigorous environmental assessment. The issue is one of process efficiency, not regulatory intent.

Permitting delays disproportionately affect greenfield exploration — precisely the category of work that the industry most urgently needs. But the permitting landscape varies significantly by region.

Australia has seen greenfield permitting costs surge from ~$65 million to $200 million per discovery — the highest regulatory compliance burden globally. Coastal West Africa (Côte d'Ivoire, Ghana) maintains relatively mature mining codes and stable institutional frameworks; permitting requires patience but is broadly predictable. Sahel interior nations (Mali, Burkina Faso) face elevated security risks and institutional instability, driving several operators to exit.

For firms conducting frontier exploration in Africa, the challenge extends beyond compliance costs. It requires building long-term relationships across multiple jurisdictions, understanding local institutional logic, and maintaining operational infrastructure capable of navigating complex administrative processes — capabilities that take years to develop and cannot be replicated through capital alone.

When every company makes the same rational individual choice — extend existing mines rather than face regulatory complexity — the collective result is irrational: an industry that is systematically failing to find what it needs.

Who Fills the Gap

These three forces do not operate in isolation. They compound. Major producers will not explore because they are returning capital to shareholders. Juniors cannot explore because the investor base has exited. The few projects that advance face regulatory timelines measured in decades.

Every year the gap persists, the future supply constraint deepens. Gold consumed today was discovered fifteen to twenty years ago. Gold that will be consumed in the 2040s needs to be discovered now. It is not being discovered.

If the public mining industry cannot or will not fund the exploration that the market demands, the question becomes: who does?

The characteristics required are specific. Patient capital that is not subject to quarterly performance pressure. Scientific capability that reduces exploration risk and cost. Willingness to work in underexplored geographies where the geological potential is highest but the institutional comfort level is lowest.

These are not theoretical requirements. They describe a category of firm that is beginning to emerge — not as a replacement for the public mining industry, but as a complement to it, operating in the spaces that public markets have vacated.