LAWRIE WILLIAMS: Whither peak gold? Australian 2018 output at new record

Predictions of the timing of peak gold (when global annual gold output starts to come down) keep on falling by the wayside and the latest nail in its coffin may well prove to be the apparent rise in last year’s gold output from Australia - currently the world’s No. 2 producer of new mined gold.  There seems to be an ongoing battle for the No. 2 spot between Australia and Russia and figures emanating from both countries suggest that their outputs of gold last year are both still on the upwards path.

We reported here that the Russian Finance Ministry put that nation’s 2018 output at around 314 tonnes (See: Russia closing gap on China as World No.1 gold miner?) and now Australian consultancy, Surbiton Associates, has come up with a report estimating the down-under 2018 figure for gold output was a new annual record of 317 tonnes, keeping it in the No. 2 spot (still just ahead of Russia).  Now the Russian Finance Ministry and Surbiton Associates figures will probably both be a little above the year-end estimates from the two big UK-based precious metals consultancies, Metals Focus and GFMS when they publish their assessments in around a month’s time, as we believe they both include categories of gold output not taken into account by the big UK consultancies, but regardless new mined output in both nations continues to rise and may carry on doing so for the next couple of years at least.

In Russia both the the country’s largest gold miners (Polyus Gold and Polymetal) are on the expansion trail while Australia’s future output growth also looks to be positive. Indeed Dr Sandra Close, a director of Surbiton Assoiciates, comments  “It took 21 years to break the old calendar year record and the outlook for the near term

looks positive but of course there can always be surprises,” she said. “Following a

fall to just 220 tonnes in calendar 2008, the industry has bounced back, helped in part by the weakening of the Australian dollar against the US dollar, as it has fallen from around parity to near US 70 cents in the last decade.”

The writer considers the Surbiton figures to be very accurate, given the consultancy concentrates 100% on the Australian gold sector - and is local rather than being located 17,000 km away!

“The last few months have been a time for records,” Dr Close said. “Not only did we have record gold production for the 2018 year and near record quarterly production but the gold price in Australian dollars also hit an all-time record of A$1,876 per ounce on 20 February this year.”  The high Australian dollar gold price has provided a great stimulus to gold exploration which has led to the delineation of new gold belts, particularly in the prolific Kalgoorlie area of Western Australia.

Surbiton notes the planned Gold Fields/Gold Road’s big new Gruyere gold mine is due to come on stream this year and is scheduled to to ramp up to around 300,000 ounces a year (or some 10 tonnes) annually at full capacity. Newcrerst’ Cadia mine in New South Wales, the country’s biggest gold producer, has been recovering from technical issues and in the December quarter was producing at a rate of around 950,000 ounces a year (nearly 30 tonnes) as compared with only 752,000 ounces (23.3 tonnes) for the whole of 2018, and Kirkland Lake’s Fosterville mine in central Victoria had already been in production for around 20 years when its present owners, Canada’s Kirkland Lake Gold Ltd, began discovering zones of high grade gold ore building its output tobecome the country’s fifth largest producer in the December quarter. “Fosterville will become a significant producer in 2019, as Kirkland Lake has just announced its output should rise from around 350,000 ounces (10.9 tonnes) in 2018 to some 600,000 ounces (18.7 tonnes)in 2019,” Dr Close said. “Its average grade was an extraordinary 40 grams per tonne in the December 2018 quarter.”

Indeed Australia’s 2018 gold production would have been even higher had it not been for a severe pit wall collapse at the Newmont/Barrick owned Kalgoorlie Super Pit in May 2018 which reduced output to 628,000 ounces (19.5 tonnes) for the whole of 2018, down from 738,000 ounces (23 tonnes) in 2017.  Remeial action is under way but whether the mine will ever get back to its earlier production levels is unknown.  It was still the country’s third largest gold miner in 2017, but had dropped out of the top five during the December quarter “for the first time since Surbiton began its quarterly gold survey over 25 years ago”noted Dr. Close.

She also had a fair amount to say on the return of gold hedging by the country’s miners which she obviously views as a positive development..  “According to quarterly reports submitted to the Australian Securities Exchange (ASX) for the December 2018 quarter, more than one million ounces, (around 31 tonnes) of future production, was hedged by ASX-listed gold producers,” Dr Close said. “To that must be added the gold hedged by foreign-owned gold producers in respect of their Australian operations.”  This is in marked contrast to the attitude of producers for many years when hedging was considered a dirty word and was shunned, not only by overseas companies but also by many Australian gold miners. In many cases, the companies boasted of their unhedged status and publicised the fact accordingly.

“Hedging and price protection methods of selling, such as forward sales and the use of options, are sensible and legitimate methods of risk management,” Dr Close said.

“Many people used to regard hedging as “speculation”, when in fact it is precisely the opposite – it is risk reduction.”

Australia’s largest individual gold producers for the 2018 calendar year according to Surbiton’s figures were

Operation

Ounces Produced

Ownership

Cadia

751,965

Newcrest Mining

Boddington

709,000

Newmont Mining

Super Pit jv

628,000

Newmont Mining 50%, Barrick Gold 50%

Tanami

496,000

Newmont Mining

Tropicana jv

477,908

AngloGold 70%, Independence Group 30%

Surbiton Associates

03 Mar 2019

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com