Australian gold

Australia’s 2015 gold production rises and may still continue to do so

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Most of the world’s principal precious metals consultancies had been predicting an increase in gold production in 2015, despite the lower US dollar gold price – and contrary to the views of a number of commentators.  In the event, as 2015 figures begin to come in it looks as though we will indeed see a small increase, although now the top analysts do see things beginning to turn down.   Chinese output is stuttering, but other countries where the local gold price has been high in domestic currency terms have even seen improving margins for gold miners and in some gold is trading at an all-time high in local currency terms.  This has meant that what many analysts had predicted as marginal, or lossmaking, mines at the lower U.S. gold price are actually nothing of the sort in domestic currency terms.  See: Ill wind. Gold price falls in USD but still positive for many nations and Gold price at all-time high in some major gold mining nations – the latter published here back in January,

Take Australia, the world’s No. 2 gold producer after China, for example.  Figures compiled by Australian consultancy, Surbiton Associates, show that the country’s gold output last year hit a 12-year high at 285 tonnes.  Q4 production was 73 tonnes, marginally up on the Q3 figure. This is higher than the GFMS consultancy’s recent estimates – but then then Surbiton Associates’ 2014 figure at 282 tonnes was also higher.  See below:

Top 10 Gold Producing Nations (tonnes) – 2015 (Estimated) (GFMS)

Rank Country 2014 2015 E Change YOY
1. China 447.8 456.5 +2%
2. Australia 274.0 277.0 +1%
3. Russia 262.2 256.7 -2%
4. USA 209.2 213.8 +2%
5. Peru 173.0 173.3 0%
6. Canada 151.2 152.1 +1%
7. South Africa 163.7 148.9 -9%
8. Indonesia 116.4 133.6 +15%
9. Mexico 117.8 123.4 +5%
10. Ghana 107.4 94.5 -12%
Rest of World 1096.7 1096.3 0%
Global Total 3119.4 3126.2 0%

Source: GFMS, Thomson Reuters

Indeed the Australian gold sector – even before the recent upturn in prices – had very much been bucking the dismal resource sector trend despite the very negative sentiment see in U.S. markets.  As Surbiton director Dr. Sandra Close points out “Once again the local gold sector has benefited from weaker exchange rates against the U.S. dollar.”  Indeed, although over 2015 the US dollar gold price slowly declined to around US$1,050 per ounce near year end, by contrast the Australian dollar gold price remained relatively stable during the year, averaging A$1,540 per ounce, while since January it has risen to over A$1,700 per ounce.

“The Australian dollar has fallen from near 95 US cents in mid-2014, to around 82 US cents at the start of 2015, to around 72 cents by end 2015,” said Dr Close. “Such a significant devaluation has provided quite a boost to the Australian gold sector, as well as to other exporters.”

“I wonder if investors are aware that the Australian dollar gold price, at around A$1,700 per ounce, is only about A$100 per ounce less than the all-time record Australian dollar gold price reached in August 2011,” Dr Close said.

Lower oil and gas prices have reduced the cost of energy in both the mining and processing phases of the industry and that the end of the “mining boom” has reduced pressure on wages and led to lower contract rates for mining and ore haulage.  Factoring in a high local currency gold price together with some lower input prices and tighter cost containment this has seen an increase in overall margins for the Australian gold mining sector overall. “Much of the local gold sector is travelling quite well for the moment.” said Dr. Close

She also noted that there had been recent overseas commentary that Australian gold producers were being squeezed by high costs.

“Such comments are typical of US-centric observers who fail to appreciate the effect of weaker local currencies on the economics of gold production, whether in Australia or in other gold producing countries outside the US,” she said.  Indeed most of the world’s major gold producers have seen sharp falls in their domestic currencies against the U.S. dollar.

Dr Close said a number of mothballed operations were currently being brought back into production which should help boost Australian gold output in the near future. In addition, there was increasing toll treatment of ore by small companies.

Surbiton notes that Australia’s largest gold mines by production for the 2015 year were dominated by the gold majors – Newmont, Barrick, AngloGold and Newcrest:

Operation Ounces Owner
Boddington 794,000 Newmont Mining Corp
Super Pit – JV 640,000 Newmont Mining Corp 50%, Barrick Gold Corp 50%
Cadia East 508,303 Newcrest Mining Ltd
Tropicana – JV 488,939 AngloGold 70%, Independence Group 30%
Telfer 488,817 Newcrest Mining Ltd

The above article is an edited version of one published yesterday on SharpsPixley.com one of the best sources for links to news and comment on precious metals on the web and which also publishes original comment written by its own staff.

Australian golds benefit enormously from weak Aussie dollar

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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.