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LAWRIE WILLIAMS: Australian gold output a whisker under 300 t/y, but royalty threat looms

Australian mining companies are out of sync with much of the rest of the world having June 30 year ends rather than reporting on a calendar year basis, thus definitive production figures may be best assessed on a July 1st to June 30th calendar year.  Thus according to Melbourne--based gold consultancy, Surbiton Associates, the country’s annual gold production continued its slow upward trend in the 2016/17 year affirming its position as the world’s second largest gold producing nation after China which produces around 450 tonnes of gold a year.  Russia in third place has also been seeing gold output increases, but probably not sufficient to overtake Australia yet.

 Thus, according to the consultancy, Australia’s total gold production for the 2016/17 year was 299 tonnes, or 9.6 million ounces, up almost 2.5 percent on the 2015/16 financial year. For the June quarter 2017, output was 75 tonnes, up some five percent from the rain-affected March quarter 2017. Peak gold hasn’t yet arrived down under!

 “With almost 300 tonnes produced in 2016/17, the gold mined was worth around A$16 billion at the average spot price for the year,” said Dr Sandra Close, a director of Surbiton Associates. “Gold is our third largest commodity export after iron ore and coal.” 

 However, Dr. Close warned there was a real concern in the gold sector that higher royalties may be imposed which would have negative economic consequences, would undermine confidence and would discourage investment.

 “The Western Australian government is once again flagging a possible increase in mineral royalties in its forthcoming state budget,” Dr Close said. “About 70% of Australia’s gold is mined in WA, so the state government must think very carefully before imposing any increase in the gold royalty.”  

 Earlier this year, the WA Premier Mark McGowan claimed WA’s Budget position was the worst since the Great Depression due to lower tax revenues and a subdued state economy.

“Too often, the mining industry and especially the gold sector are seen as easy targets by governments trying to increase their revenue,” Dr Close said. “But increasing financial burdens on the generators of wealth can have unintended consequences – in mining it can mean higher cost operations close, with the resultant loss of jobs and tax revenues.”

“Has it been forgotten that during the Great Depression the gold industry was one of the few bright spots in the WA economy?” Dr Close said. “It was one industry that allowed WA literally to dig its way out of financial difficulty.”

She went on to say that it was important that, via the royalty system, the WA community derive a fair return for the minerals that are exploited by mining companies. However, she warned it is vital that this amount be carefully determined, to avoid ‘killing the goose that lays the golden egg.’

“It should be remembered that these payments must be made irrespective of whether the mining company is actually making a profit,” Dr Close said. “As much as 10 percent of a company’s revenue may be eaten up in royalties and similar payments, in addition to taxes and other charges.”

Dr Close further noted that mining is a long-term, high-capital cost business and investment decisions must be made on a long term basis. If governments impose extra charges then investment confidence can be quickly eroded.

Regarding gold production, in the June quarter there was the usual mix of good and bad results.

“The stand-out performance was Canada’s Kirkland Lake Gold at Fosterville in Victoria which produced 77,000 ounces, a 67 percent increase on the March quarter 2017,” Dr Close said. “Fosterville treated ore grading over 17 grams per tonne, or more than ten times the average grade for the industry and one of the highest quarterly ore grades that I can ever remember.”

Also adding to the total was Westgold Resources’ Fortnum operation which produced its first gold in mid-June. The mine, located north of Meekatharra, WA, had been on care and maintenance for about a decade.

On the downside, Newcrest Mining’s large Cadia East mine had a poor quarter with gold production falling 80 percent, or more than four tonnes, due to the effects of earthquakes which damaged mine workings underground. This led to a shortage of ore and the processing of low grade stockpiles. Production is slowly returning to normal. 

“Had Cadia Valley had a normal quarter’s output, Australia’s total gold production for 2016/17 would have comfortably exceeded 300 tonnes,” Dr Close said.   

Australia’s Top five gold producers for the 2016/2017 year (producing between them around one-third of the nation’s gold output) were:

Operation

Ounces

Owner

Boddington

833,000

Newmont

Super Pit - JV

752,000

Newmont 50%, Barrick 50%

Cadia Valley

619,606

Newcrest

Tropicana

431,972

AngloGold Ashanti 70%, Independence Group 30%

Telfer

386,241

Newcrest

28 Aug 2017 | Categories: Gold, Mining

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