The Shaky Pot Of Gold: Miners Are Digging Up More As Prices Fall

The spark has gone from gold but producers have a winning formula, helped by a weakening Australian dollar.

The miners are digging more of it, or rather better grades of ore, and cutting costs as the price falls.

When prices were high, it made sense to process the lower grade ore. Now they target the higher concentrations of gold.

This strategy helps to maintain margins.

Australia’s gold production rose for the second quarter in a row on the back of lower prices in the three months to 30 September 2013.

Gold output rose four per cent to 69.5 tonnes in the latest period, up from 67 tonnes in the June quarter. This is a rise of 12 per cent on the 62 tonnes produced in the same quarter in 2012.

Melbourne-based mining consultants Surbiton Associates say the higher production is due to the treatment of higher ore grades and this, in turn, reduced cash costs.

Surbiton’s Sandra Close says: “This is precisely what we expected, given the decline in gold prices in April and the lack of a significant recovery since then.”

The US dollar price of gold was around USD1,580 per ounce at the start of April and fell as low as about USD1,190 by the end of June. It recovered to average USD1,326 for the September quarter and is currently around USD1,240 per ounce.

“However, it is the Australian dollar gold price which is important locally,” Dr Close says.

“Fortunately, the decline in the Australian dollar exchange rate has given producers some relief, with the Australian dollar falling from around 105 to around 90 US cents this year.”

The substantial decline in cash costs for Australian operations is due to two factors: increased ore grades; and a renewed focus on cost cutting.

Australia has become a high-cost producer over the past decade, with average cash costs increasing from around USD237 an ounce in 2012 dollars in 2002 to USD857 an ounce in 2012.

BREE (Bureau of Resources and Energy Economics) forecasts world gold mine production to rise at an annual average rate of two per cent to 3,246 tonnes in 2018.

In 2014 prices are forecast to average USD1275 an ounce. Between 2013 and 2018, gold prices are projected to decline to a low of USD1243 in current dollars.

Top Australian gold producers in the September quarter:

  • Boddington, 178,000 ounces (Newmont Mining)
  • Super Pit, 174,000, ounces (Newmont Mining Corp 50 per cent, Barrick Gold Corp 50 per cent)
  • Telfer, 123,691 ounces (Newcrest Mining)
  • St Ives, 103,800 ounces (Gold Fields)
  • Tanami, 100,000 ounces (Newmont Mining)

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