Gold and gold stocks shine for Australia

The big annual Diggers and Dealers event is now under way in Kalgoorlie, W. Australia – probably the country’s most important annual mining sector conference – and, given its location in the heart of Australia’s principal gold belt, the event tends to have something of a concentration on the gold and gold mining sector.

One of the country’s premier consultancies specialising in analysis and statistical information gathering for the Australian gold sector is Surbiton Associates out of the Melbourne area, so what Surbiton Director, Dr Sandra Close had to say in Kalgoorlie gave a great insight into the huge success of the Australian gold sector, and the resource sector in general, over the past year or so, helped substantially by the decline in value of the Australian dollar against its US counterpart (in which gold revenues are received) and which has seen the gold price trading at or near all-time highs in Australian dollar terms.  Some of Dr. Close’s comments are set out below:

The Australian gold sector has certainly proved to be the outstanding performer in the local resources industry in the first half of 2016, Melbourne based specialist mining consultants Surbiton Associates said at the Diggers & Dealers Forum in Kalgoorlie today.

Gold output for 2015 totalled 285 tonnes or 9.2 million ounces which was worth over A$14 billion at the average spot price for the whole year of some A$1,540 per ounce, but since the start of the current year the Australian dollar gold price has risen further.

“The average spot price for the first half of 2016 was A$1,665 per ounce, 8 per cent higher than last year’s average price,” said Dr Sandra Close, a director of Surbiton Associates. “So far this year the gold price has generally trended upwards and is now nearing A$1,800 per ounce. With producers still keeping a tight rein on costs, such prices are providing a real boost.”

As world markets experienced uncertainty due to the Brexit vote, the Australian dollar gold price peaked briefly to an all-time record high of over A$1,850 per ounce on 24 June, due to a rise in the US dollar gold price combined with a weaker Australian dollar.

“Lately we have seen more producers locking in attractive prices and ensuring some excellent margins, by taking advantage of peaks in the local price and hedging part of their output,” Dr Close said. “Output is remaining strong for the moment too, as producers ‘make hay while the sun shines,’ reduce their debt and pay some dividends.”

However, she said that if the price remains high producers may well begin to treat slightly lower grade material, to prolong the life of their operations and better utilise their resource, while still maintaining reasonable margins.

“Gold shares have once again caught the market’s attention,” Dr Close said. “Prices of some of the ASX listed producers have risen substantially, as gold has come back into favour, by virtue of higher gold prices plus gold’s traditional role as a store of wealth in uncertain times.”

She said that since the beginning of 2016, Saracen’s share price has almost tripled; the share prices of St Barbara and Evolution have more than doubled; and Newcrest’s share price has almost doubled.

Dr Close said that while the gold sector is travelling better than most at the moment, the local minerals and energy industries are still well and truly in business too, despite what many people think, and resources remain by far Australia’s greatest export earner – vital to our well-being.

“The latest government figures available show that for the 2014/15 financial year resources and energy exports, at A$172 billion, were just over four times greater than total agricultural exports of A$42 billion,” Dr Close said. “It’s a long time since we rode on  the sheep’s back – these days we well and truly ride on the back of giant yellow trucks and in big bulk carriers.”

She said that on an annual basis the value of iron ore exports alone, at around some A$50 billion, was greater than the total of all agricultural exports, while the values of the next four largest single exports – coking coal, LNG, thermal coal and gold – were between A$15 billion and A$20 billion for each commodity.

“The resources industry has undergone many changes in the 25 years since the first Diggers and Dealers Forum,” Dr Close said. “I sometimes wonder how many Australians really appreciate the huge expansion the minerals and energy sectors have undergone in that time and how much they have contributed to our economy and our standard of living. Where would we be without them?”

You can learn more about Surbiton Associates at www.surbiton.com.au

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