Australian gold production rises 9%

Australia’s gold production increased 9 per cent in the 2013-14 financial year, new figures from Surbiton Associates have revealed.

The mining consultancy firm said the annual rise represented the equivalent of 24 tonnes, bringing the country’s output to 280,000 tonnes for the year.

According to Mining Weekly, Surbiton’s figures estimate Australia’s gold production was worth $12.5 billion over the 12-month period at current spot prices.

Dr Sandra Close, the organisation’s director, claimed that while the figures look encouraging, there are a number of important factors to consider.

“While some new operations have opened, others have closed, so the majority of the rise is due to an overall increase in ore grades, as the industry responds to harder times,” she stated.

“Many gold producers are treating higher-grade ore in order to protect their margins, in response to lower prices in much of 2013 and 2014.”

Dr Close said this approach leaves lower-grade ore in the ground, which means reserves dwindle over time and mine lives are reduced.

The global mining landscape

A 2013 report by PricewaterhouseCoopers (PwC) said miners worldwide were hit hard by a slump in gold prices, making some operations increasingly untenable.

At the beginning of last year, buying an ounce of gold cost US$1,700. However, the price had plummeted to just US$1,200 by the summer.

“The commodity, considered a currency and a hedge against inflation, began losing its lustre after the US Federal Reserve signalled it would cut back its stimulus package,” said John Gravelle, global mining leader at PwC.

Despite this, the yellow metal has rebounded in 2014, with geopolitical tensions arising in various countries and concerns over the US economy prompting prices to rise.

In fact, while the Fed’s planned quantitative easing cutbacks have occurred, the negative impact on gold’s recovery has been slight.

Australia’s gold production

With prices on the increase, Australian gold production could enjoy a resurgence in 2014-15.

However, Dr Close warned the Western Australian government against making significant changes to existing royalty rates, commenting that an existing decline in exploration could worsen.

More than two-thirds of the country’s gold is mined in WA, and Dr Close said exploration expenditure is typically a good indicator of the industry’s health.

“When times get tough, spending on exploration is one of the first things to be cut,” she stated.

The expert cited Australian Bureau of Statistics’ data for the nine months to March 2014, which showed total mineral exploration plummeted 34 per cent when compared with the preceding corresponding period.

Dr Close said figures from the March 2014 quarter were even more disappointing, with gold exploration in WA dropping 50 per cent year on year.

According to the state budget, the government is looking to boost royalty income from 5 per cent of total state revenues up to 25 per cent by 2017-18. The royalty review process should be completed by the end of the year.

What effect do you think the WA government’s royalty review will have on gold production in Australia?

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