Gold sector still positive despite worries

While gold output fell in the past financial year compared to the previous period the Australian gold sector is sill looking positive.

According to gold mining consultants Surbiton Associates output for 2011/12 was 261 tonnes, or 8.4 million ounces, which was 11 tonnes or 4% less than in 2010/11.

Despite this lower output gold prices remained high, with the average spot price sitting around $1620 per ounce, and the pipeline of new gold projects for the end of 2012 has the sector trending upwards.

“The fall in production was not surprising given the higher gold prices,” Sandra Close, a director of Surbiton Associates, said.

“However, with several new and rejuvenated projects coming on stream in late-2012 and in 2013, we should see production rise.”

She went on to say that “overall, producers took advantage of the higher gold prices and made the most of their deposits by treating slightly lower grade ore.

“What is most critical is the margin between sales prices and costs."

In the most recent June quarter of this year, gold output was around 65 tonnes, which bucked the overall downwards trend and was 4% higher than the previous corresponding period.

“We saw a rise in output in the June quarter and the next few quarters are looking pretty positive as well,” Close said.

“Regis Resources has just poured the first gold at Garden Well which alone will add around 240,000 ounces to annual production.”

Merger and acquisition activity has also increased, with greater foreign movement in the Australian sector.

“Overseas investors are showing considerable interest in Australian gold operations. Lately, there have been various bids and takeovers by overseas companies of both local and foreign-owned gold producing companies.”

Liongold has been one of the most active of foreign owned companies.

“As well as the Singapore-based LionGold Corp’s recent forays, Chinese owned Xijin Mining has just taken over Norton Gold valuing the company at about $215 million, [while] Canadian based Crocodile Gold, which has Union Reefs in the Northern Territory, has now also acquired both Fosterville and Stawell in Victoria, previously owned by AuRico.”

However a merger by two Australian companies has also boosted the sector.

“Silver Lake Resources’ takeover of Integra Mining will create a significant locally listed producer.

"Their combined output will be around 400,000 ounces of gold annually.” 

Despite some Australian movement there is a growing concern over the levels of foreign influence in the gold sector, and the amount of capital heading overseas.

"The point has been reached where over half of all exploration expenditure by Australian-listed companies on both gold and other minerals is now being spent overseas,” she said.

“While it is rational to use our expertise overseas as well as locally, you have to question what is driving such a strong move offshore.”

It is understood that increased taxation and uncertainties over rights and minerals access will contribute to a future slow down in the industry.

“If the government wants the boom to continue and to have a positive effect on the economy, it needs to act now to ensure that exploration in Australia, particularly by locally listed companies, is encouraged,” Close said.

“Otherwise we will find that over time the Australian minerals industry will shrink and competition from offshore producers will increase.”

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