Australian golds benefit enormously from weak Aussie dollar

With the Australian dollar gold price currently sitting at over AUD $1,600, gold miners in the world’s second largest producing nation after China are seeing price strength, whereas their U.S. counterparts are seeing the opposite.  I have been pointing this out for some time – here and on other websites I write for – so its nice to see such a heavy hitter as the Metals Focus specialist precious metals consultancy coming up with commentary on the same theme.  The following is abstracted from their latest Precious Metals Weekly newsletter:

It’s not all doom and gloom for Australian Gold Miners

Gold priced in US dollar terms is languishing some 40% below the 2011 peaks, however, when priced in Australian dollars (AUD) it is just 11% down and since November has risen by some 24%. The Australian economy is heavily exposed to the commodities sector and has been one of the hardest hit by the general decline in prices. The AUD, which at its peak would buy 1.10 US dollars (USD) has now declined by 36% and can now purchase 0.70 USD.

One of the features of the recent commodity bull market was a high cost inflation environment. Particular pressure was felt from labour costs, as shortages of skilled personnel and competition from bulk commodities drove wages up. Labour often makes up as much as 50% of a mine site’s costs. The slowdown across the commodities sector over the last few years has now led to less competition and an end to above inflation wage demands. Other input costs such as oil, which on average makes up circa 10% of mine site cost, have also dropped significantly (circa 40%) over the last year.

Looking at the second quarter 2015 and focusing on Australian producers, total cash costs have averaged A$805/oz and all-in sustaining costs (AISC) averaged A$1,124/oz, a decline of 9% and 4% from their Q2 2013 peaks. But in US$ terms, when the benefits of the fall in the Australian dollar are added in, costs have fallen by 28% and 26% respectively. This has helped mining companies increase their basic margin between AISC and the gold price to A$401/oz, from the low of A$243/oz which was hit in Q2 2013.

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