Australian Q1 gold output cut by wet weather

Melbourne-based mining consultants Surbiton Associates Pty Ltd said Australian gold production fell in the March quarter 2017, with the industry affected by wet weather in many parts of the country.  Australia is the world’s second largest producer of new mined gold, after China and onl just ahead of Russia.

Output for the quarter was some 71.5 tonnes of gold, a fall of around six tonnes, or eight percent, compared with the excellent result of some 77.5 tonnes achieved in the December quarter 2016. Nevertheless, gold production for the quarter was similar to output in the March quarter 2016.

“The fall in output for the recent March quarter was not surprising, as wet weather early in the year often disrupts production,” said Dr Sandra Close, a Surbiton Associates’ director. “This year heavy rain in Western Australia, which accounts for about three-quarters of Australia’s gold output, plus the effects of Cyclone Debbie in Queensland in late-March, played havoc with gold production at many operations across the country.”

Dr Close said that while the lower production marks a poor start to the calendar year, typically output is higher in the other three quarters. Additionally, the March quarter is the shortest quarter of the year and this makes a difference, as every day of the year about three quarters of a tonne of gold is produced, worth over A$40 million at current prices.

“Heavy rain affects mining and ore haulage at gold mines in a number of ways, including flooding, access for supplies and materials handling problems,” Dr Close said. “As well, in open cuts and in underground operations where the ore is often hauled from underground to the lower levels of previously mined open pits, problems can arise due to ore and waste having to be trucked up steep, greasy haul roads.”

If the mining operations cannot produce enough ore to keep the processing plant at full capacity, then stockpiled material is sometimes used to supplement the ore feed. This material is usually of lower grade and results in less gold being produced and higher costs of gold production.

“However, in the March quarter 2017 the lower gold production was mainly due to a reduction in the tonnage of ore treated by the primary gold producers, along with fewer days in the quarter,” Dr Close said. “There was only limited use of lower grade stockpiles, as there was not a significant change in the average weighted recovered grade on an industry-wide basis.”

Newcrest’s Telfer mine in the Great Sandy Desert in northern Western Australia experienced significant disruption, with record rainfall in January. This led to a fall in output of around 35,000 ounces of gold for the March quarter 2017 compared with the previous December quarter 2016.

Many other operations also reported lower output for the quarter. These included Newmont’s Tanami operation down 25,000 ounces; AngloGold and Independence’s Tropicana operation, 22,000 ounces lower; and the Super Pit at Kalgoorlie, owned equally by Newmont and Barrick, down 16,000 ounces.

“The Australian gold industry continues to benefit from a relatively stable, relatively attractive, Australian dollar gold price, maintained in part by a favourable US dollar exchange rate, with an Australian dollar worth around US 75 cents,” Dr Close said. “This has encouraged further activity in the sector, including the start-up of several mothballed treatment plants.”

Production continues to ramp up at Blackham Resources’ Wiluna, WA project. Westgold Resources’ Fortnum, WA operation is currently being commissioned and Eastern Goldfields’ Davyhurst, WA treatment plant is nearing production. Maximus Resources, which bought Ramelius Resources’ mothballed Wattle Dam plant near Coolgardie, expects to toll treat ore from other companies soon. Also, Toronto-listed Monument Mining Ltd hopes to bring its Burnakura, WA treatment plant into production later in 2017.

“Some years ago when the Australian dollar was strong and worth more than one US dollar, over half of the mineral exploration expenditure by Australian companies was being spent overseas,” Dr Close said. “It is encouraging that more recently this seems to have turned around, as we note that now there is a greater emphasis on exploration within Australia.”

Dr Close said that Australian control of the local gold mining industry still remains at just over 50 percent, although there has been increased ownership of some Australian operations by Chinese and Canadian companies.

Australia’s largest gold producers for the March quarter, 2017 were:

Newmont Mining Corp
Super Pit – JV
Newmont Mining Corp 50%, Barrick Gold Corp 50%
Cadia East*
Newcrest Mining Ltd
Tropicana – JV
AngloGold 70%, Independence Group 30%
St Ives
Gold Fields Ltd

*includes minor output from Ridgeway


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

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 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.