The performance of the Gold Ore Mining Industry will continue to follow broad trends in production and Australian dollar prices.
Gold prices were pushed up in 2005-06 and continued to increase further in 2006-07, reflecting continued global uncertainty and gold’s use as a store of value.
Prices are expected to continue rising in 2007-08 and into 2008-09, buoyed by rising investment demand.
Concern that a number of factors, including the US current account deficit, shifts in US interest rates and signs of weakness in the US economy may give rise to a depreciation in the value of the US dollar, are expected to see investment demand for gold rise. This trend will be strengthened by continued tensions in the Middle East, as well as by the possibility that central banks may consider reducing their holdings of US dollars.
Beyond that time prices are expected to flatten and then ease as tensions ease and supply at last responds to the high prices of recent years.
Essentially, the flight to security that benefited gold producers is expected to abate.
The extent of price falls will be limited by a number of factors. Gold sales by central banks are expected to ease, while increases in the mine output of gold worldwide are expected to remain modest.
At the same time, there are solid prospects for rising demand for gold in Asian markets.
In particular, growing affluence in China is expected to boost the demand for gold jewellery, while gold will continue to be viewed as a portable store of value throughout Asia.
As always, major political shocks to the global economy have the potential to cause large short-term fluctuations in the gold price.
Similarly, a major unexpected flow of gold from stocks onto the market can push the price down sharply.
In addition, the situation is complicated by the fact that fluctuations in the gold price reflect changes in the valuation placed on the United States dollar as well as shifts in the market for gold itself.
Australia’s gold production is expected to expand over the outlook period.
The redeveloped Telfer mine will contribute about 800,000 troy oz of output per year when it reaches full production.
Significant contributions will also be made by the Cracow mine as it reaches full production of about 120,000 troy oz per year, the Fosterville mine in Victoria (110,000 troy oz at full production) and the Cowal mine (about 230,000 troy oz at full production).
Major new or refurbished operations will include the Prominent Hill mine in South Australia (110,000 troy oz per year from 2009) and the Boddington joint venture (900,000 troy oz per year).
In addition, high gold prices provide an incentive to lift production at existing operations where possible and provide a buffet against expected rises in the cost of winning gold at older mines.
Production costs tend to increase as mines become deeper (or move from being open cut to underground operations) and encounter harder ores.
The relatively high gold price of recent years will also have a longer term impact, providing an incentive to re-examine techniques aimed at exploiting lower grade ore.
Increasingly, Australia’s gold production will come from larger mines as smaller, short-life mines become uneconomic and are closed.
Taking these factors into account, Australia’s gold output is expected to amount to about 325 tonnes in 2011-12.
The long-term, high-risk nature of greenfields exploration for gold, and the resources required to fund it, suggest that gold exploration and therefore production will remain the province of large companies. This trend will be reinforced by production requirements, notably: the large amounts of capital required for open cut mining at depth; the technology needed to make the transition to underground operations as shallow reserves are depleted; and the higher costs of processing deeper sulphide ores rather than shallow oxide ores.
Gold industry revenue and value added will reflect trends in production, US dollar gold prices and the exchange rate.
The Australian dollar gold price is expected to increase over the outlook period, as a depreciation in the value of the Australian dollar more than offsets a fall in US dollar prices.
That increase, together with higher levels of production, is expected to lift industry performance over the outlook period. However, the gains will be concentrated early in the outlook period, reflecting price increases at that time.
In contrast, real industry revenue is expected to ease over the last three years of the outlook period in response to price falls at that time.
Overall, real industry revenue is forecast to expand at an average annual rate of about 2.9% over the five years ending in 2011-12, with value added edging up by about 0.9% per year.
The slower growth in value added reflects the typically higher costs associated with deeper mines and more complex geological formations.