Gold production rises, price slide remains

Cost cutting and a move to higher grade ores has seen Australia’s quarterly gold production rise 4 per cent to 69.5 tonnes.

Increasing 12 per cent on the previous corresponding period, Melbourne-based Surbiton Associates said the September-quarter gold production increase was due to the treatment of higher ore grades.

With gold selling for far less than it did at this time last year, down around 12 per cent, miners have looked to get ahead of the curve by axing overhead costs and running higher grade material through the mill.

Surbiton director Sandra Close said the industry had shifted gears since the price slump fell on the sector early this year.

"During the decade-long period of rising gold prices between 2001 and 2011, gold producers progressively reduced the grade of ore being treated," Close said.

"This resulted in lower gold production and higher cash costs. Now the reverse is happening, particularly since the fall in gold prices earlier this year.

"Higher grades are being treated, gold production has increased, and cash costs have fallen. Mining higher-grade ore is a perfectly rational response when the price of gold declines, so that margins are maintained. This should not be confused with the practice of 'high grading', where only the richest ore is treated and the resource not properly utilised.”

While the falling Australia dollar has given producers some relief, gold prices fell to four month lows last week, with the battle to keep costs down set to continue.

Citi's metals and mining analysts said companies with leverages balance sheets were under "significant pressure", The Australian reported.

"All-in sustaining cash costs for many ASX-listed producers remain well over $US1000 an ounce. With cost-cutting programs already undertaken, further margin pressure is likely to (result in) major revisions to scheduling (and hence mine life) and or/or eventual mine closures," the group said.

Gold prices have been in steady decline in recent months as investors who bought the asset to hedge against high inflation and a weaker US dollar shed their holdings.

While investors regularly turn to gold as a refuge in times of economic downturn, the metal can also act as a risky asset.

Peaking at $1730 an ounce in September 2011, the precious metal is today trading at $US1239 an ounce.

Some predict the correction phase could last well into next year with gold likely to be selling for less at the end of 2013 then at the start, a first in 13 years.

The massive drop in prices has seen a spate of job losses, sell offs and scaled-back projects in the Australian sector.

Barrick announced it would cut $2 billion from its capex and costs and sold its Yilgarn South assets in WA to South African company Gold Fields.

Tanami gold have put their Kimberley-based Coyote mine into care and maintenance and Focus Minerals has announced plans to halt operations at its Laverton Gold project as rising costs were making the project unprofitable.

While job cuts have hit Newcrest, Gold Fields, Barrick and Evolution Mining.

World Gold Council managing director of investment Marcus Grubb says the gold market would become stronger towards the end of this year and into 2014 as demand from China and India increases.

Send this to a friend