Australian gold sector defies decline in reserves

While the world’s top 10 gold producers may have reportedly experienced a decline in reserves between 2010 and 2019, Australia is well positioned to continue a surge in gold exploration. Nickolas Zakharia explains.

Australia’s gold exploration expenditure increased to $304.4 million in the June quarter of 2020, according to the Australian Bureau of Statistics. 

The prospect of discovering another project the quality of Fosterville in Victoria is part of what has led to an exploration revival as prices for the commodity have also risen. 

Australian gold companies have also continued to stay the course in growing their portfolios.

Leading Australian gold producer Northern Star Resources spent $288.7 million on its exploration and evaluation assets in the 2020 financial year. Saracen Mineral Holdings invested $273 million on growth projects and exploration in the same period to prepare its business for the future.

In October 2020, the joint Super Pit owners agreed to a merger-of-equals worth $16 billion.

Bellevue Gold, an emerging gold company, plans to spend $35 million on its exploration projects in the 15 months from October 2020.

International companies are also investing in Australia, with South  Africa’s Gold Fields spending $US58.3 million ($81.3 million) on exploration during 2019.

In September 2020, a S&P Global Market Intelligence report studied the world’s 20 largest gold miners and calculated changes in their reserves and production. 

Sixteen of the 20 largest gold producers covered in the report have experienced a decrease in their overall years of remaining expected production compared with 2010. 

While lower gold reserves also indicate increased production – as demonstrated in Australia – the report states that a ‘lack of new discoveries and a shift away from growth-focussed strategies towards margin preservation’ has contributed to a decline in reserves.

“If you were to look back 15-20 years, gold companies were very much focussed on growth. This shifted suddenly following the 2008 global financial crisis to shareholder value creation and production of ‘quality’ ounces over volume,” S&P Global Market Intelligence principal research analyst Kevin Murphy tells Australian Mining. 

“Will this change? That is a difficult call to make. It will be up to each company to decide which direction is best. 

“Should gold remain elevated for the foreseeable future, it will definitely be an incentive for increasing production.”

Data from the report highlights that many major gold producers have focussed on acquisitions to boost reserves and maintain production rates, rather than exploration projects to discover significant gold resources.

A total of 95 per cent of gold production was replaced by major gold producers between 2010 and 2019, while almost three quarters of the group’s total expenditure contributed to acquisitions – the equivalent of $US51.38 billion.

This accounted for 53 per cent of the group’s overall reserve growth.

“Some of the major acquisitions over the past few years show that major companies are more than willing to turn to acquisitions to replenish their production portfolio and pipelines,” Murphy says.

“While this is a viable strategy for individual companies, it isn’t viable for the industry in the long run. Transactions simply shift existing ounces around rather than discover new ones for development.”

The report states that the industry’s long-term success will depend on the discovery of new resources, and that while there has been ‘historically high exploration spending’ between 2010-2019, there has also been a ‘substantial decline’ in major gold discoveries.

According to Murphy, government programs have supported the increase in exploration activity within Australia. 

“We are already seeing a rise in grassroots exploration in Australia, although this is thanks to government programs encouraging grassroots exploration and a renewal of interest in Australia’s potential following the initial announcement of the Winu discovery by Rio Tinto a couple years back,” he says.

Published by Geoscience Australia in compliance with the Joint Ore Reserves Committee (JORC), gold ore reserves have also remained steady as production increased. 

By 2018, gold’s proved and probable ore reserves reached 4018 tonnes (a 149-tonne increase from 2017), with Australia producing 315 tonnes.

In 2010, the proved and probable gold reserves were 4070 tonnes with 260 tonnes of production. Reserve life decreased to 13 years in 2018 compared with 16 years in 2010. 

Most of Australia’s ore reserves and mineral resources are reported in compliance with the JORC code. 

For Murphy, gold miners will have to weigh up the near-term and long-term benefits of greenfields and brownfields exploration.

“Greenfields exploration takes time and is high risk, whereas brownfields exploration is more likely to give a near-term benefit to existing mines,” he says.

“Of course, brownfields exploration is far less likely to result in major new discoveries. So, it’s a trade-off, reliable resource growth/replacement at/near existing operations at the expense of major new discovery potential.”

Exploring Victoria

Founded in 1852, the Geological Survey of Victoria maps the surface and sub-surface of Victoria for the public. 

Geological Survey of Victoria Manager Minerals Geoscience Cameron Cairns says Victoria is plentiful in greenfields and brownfields exploration opportunities.

“Some communication by mid-tier Australian gold producers indicate that is much better value for ounces discovered from their exploration dollar than ounces acquired,” he tells Australian Mining.

“With respect to gold and greenfields, the Geological Survey of Victoria delivered the Gold Undercover Initiative in 2010.

 “This focussed on new research and applied techniques in northern Victoria where prospective rocks that host Victoria’s known gold deposits are concealed by the younger post mineral cover of the Murray Basin.

“The learnings from that program, the culmination of which unfortunately coincided with the global financial crisis, remain relevant today for new and existing gold explorers, and we’re seeing a lot of people tapping into that data and knowledge right now.”

Recent discoveries include Catalyst Metals’ 1380 grams per tonne gold assay under cover at the Four Eagles project in north central Victoria, and Stavely Minerals’ high-grade Thursday’s Gossan copper-gold prospect in western Victoria following a large program of pre-competitive geoscience by the Geological Survey of Victoria and Geoscience Australia. 

“Thursday’s Gossan is probably not too dissimilar to some of the gold exploration that we’re seeing in that we’ve got a decades old prospect given new life through new thinking, new approaches and a commitment to drilling,” Cairns says.

Victoria’s gold exploration expenditure reached a record $31.8 million in the June 2020 quarter, according to the Australian Bureau of Statistics. Exploration spending in Victoria has continued to rise since the 2015 financial year. 

“The large amount of exploration drilling we’re seeing is tracking really well – in particular systematic diamond drilling that we’ve seen from some of the Canadian-backed explorers – is really encouraging and is having a positive flow on effect to many of the other explorers in regional Victoria,” Cairns explains.

Kirkland Lake’s Fosterville mine is the centrepiece of Victoria’s gold portfolio. 

Acquired by Kirkland Lake in 2016, the mine produced 619,366 ounces of gold at a grade of 39.6 grams per tonne and a recovery of 98.8 per cent in the 2019 calendar year, with mineral reserves rising a million ounces to 2.7 million ounces at an average grade of 31 grams per tonne as of December 31, 2018.

S&P Global Market Intelligence’s report shows that of the 16 gold producers that have managed to increase their annual production between 2010 and 2019, Kirkland Lake enjoyed the largest increase. 

“Fosterville has demonstrated the potential size of the prize and that is squarely in the mind of most explorers that are either on the ground right now or are trying to enter Victoria through new licence applications or JV opportunities,” Cairns says.

“It’s really shifted the needle in terms of gold exploration activity in Victoria. Things are very buoyant at present.”  

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