FX:Australia’s gold production jumps 10% on record prices
PERTH (miningweekly.com) − Australia’s gold production increased 10% year-on-year in the 2011 financial year, as new operations came into production and old mines were reopened on the back of soaring bullion prices, Surbiton Associates director Dr Sandra Close reported.
In its latest quarterly production figures, Surbiton sated that Australian gold production for the three months to June had increased by 5% to 68 t, or 2.1-million ounces, compared with the 65 t produced in the previous quarter.
Gold output for the full year totalled 270 t, an increase of 24 t on the previous financial year.
“There’s a lot of activity in the gold sector, with several operations slated to come on stream in the next 12 months and several others still in the feasibility study stage,” said Close.
She noted that some of the gold deposits that were previously mined in the earlier years of the current gold boom, which has now been in progress for 30 years, have become attractive targets.
“The recent spike in the gold price has certainly drawn attention to the industry but it is the sustained, longer-term, upward trend in the gold price that has prompted companies to re-evaluate older deposits and also explore for new ones.”
She said that following the price doldrums of the late 1990s, US dollar gold prices have slowly trended upwards before gaining considerable momentum in the past few years. However, the dramatic rise in August, from around $1 600/oz to a spike of over $1 900/oz, has really caught the market’s attention.
“Clearly the US dollar gold price drives the market. But it’s essential that local producers and investors also take account of the Australian dollar gold price.”
The Australian dollar gold price was determined by the US dollar price and the Australian dollar/US dollar exchange rate, which has fluctuated considerably in the last ten years.
During 2001, the Australian dollar fell below 50c. By July 2008, it had risen close to parity before dropping to 63c in February 2009 and rising again to hit $1.10 in late July 2011.
The gold price in local terms hit a record A$1 806.50/oz on 22 August, based on the London afternoon “fix”, before dropping about A$150/oz in the following three days.
“At this stage the weakness in the gold price over the past few days appears to be little more than a healthy correction. It takes more than a few days of price weakness to break a ten-year upward trend,” Close said.
She reiterated her view that the outlook for gold remains positive.
“The recent strength and volatility in the gold price is not surprising, rarely have I seen so many long-term factors favouring gold. I can’t see the economic and political instability around the world being solved quickly.”
Close noted that in addition to the problems in the US, there were the concerns with several members of the European Union and the future of the Euro, as well as the continuing concerns with stability in the Middle East and North Africa.
“As well as the economic and political factors, there is an increased demand for gold as investors seek a safe haven for their savings. However, newly mined supply is not growing at the same rate as demand.”
Close called into question the decision of the Reserve Bank of Australia (RBA) to sell two-thirds of Australia’s gold reserves in 1997. Between January and June in that year, the RBA sold about 167 t of gold at an average price of about $350/oz, worth $1.9-billion.
“The proceeds of the gold sales were immediately invested in foreign currency assets (government securities denominated in US dollars, Japanese yen and German marks,),” the RBA said in a media release at the time.
“In retrospect, given the state of the US dollar and the Euro, that decision does not look terribly smart. Today, at say $1 750/oz, 167 t of gold would be worth around $9.4-billion.”
She said that the RBA’s sale also coincided with record gold production in Australia and at the time many interpreted the RBA’s action as being a vote of no confidence in one of Australia’s top export earning sectors.
“Gold sitting in a bank vault is often criticised as earning no return. However, a rise in price from $350 to $1,750/oz in 14 years is equivalent to a compound annual return of about 12%, which doesn’t seem too bad to me.”
The Super Pit joint venture between Newmont Mining and Barrick Gold was the biggest producer in 2011, with output totalling 788 000 oz. Newmont’s Boddington mine produced 757 000 oz, followed by Newcrest Mining’s Telfer mine which produced 621 290 oz. Gold Fields’ St Ives mine produced 472 070 oz and Newcrest’s Cadia produced 365 873 oz.
