Miners are calling on the Western Australian government to leave gold out of its upcoming royalty review.
Arguing the drop in the precious metal’s price and the increasing production costs are already undermining the industry.
The Chamber of Minerals and Energy and the Association of Mining and Exploration Companies have stated that if prices continue on a downward trend gold miners should be afforded a royalty holiday until they bring surging costs under control.
Following two days of significant price drops, Gold managed to recover some losses yesterday afternoon, closing at about $US1377 an ounce.
According to data released yesterday by CME the average cost of gold production in WA mines has more than doubles in the past six years from from $511/oz in 2007 to at least $1100/oz now.
The West Australian has reported there is disagreement in the industry over the consistency of cost reporting. The CME measure includes operational cash costs at the site level and includes transport, refining and administration costs and royalties.
The data excludes borrowing costs, depreciation, exploration costs and overheads, and CME chief executive Reg Howard-Smith said that when these costs are included some miners would be uncomfortably close to being unprofitable.
The time it takes to alter mining plans towards digging up less expensive ore is one, Howard-Smith said the state government should excuse gold miners from its royalty review and instead consider tax exemptions if prices fell further.
"As a starting point we would say that gold is not a commodity we should start looking at (in the review)," Howard-Smith said.
"Quite the contrary . . . and you may be getting to the point where if there are further gold price falls of saying 'hey there needs to be some relief here'."
The Barnett Government last year announced a review to lift royalty revenue by $180 million a year by 2015-16.
At the time nickel, alumina and gold producers were expected to be the hardest hit.
But since the announcement the price of gold has fallen from its heights and AMEC chief executive Simon Bennison said the Mining Act includes a provision for royalty holidays for the exact sort of sharp cyclical downturn gold is currently experiencing.
Gold has been on a downward trend, despite a spike in October last year at $1750 an ounce; it has been progressively dropping to pre boom days.
Throughout history gold has tended to spike when there is uncertainty in the marketplace that is what we saw in October, however since then investor confidence has risen slightly, and gold has subsequently dipped.
Bennison also cautioned the Federal Government against industry tax hikes in the May Budget.
"Governments have to understand these pressures are symptomatic of the resources sector at the moment, and policy settings have to reflect these pressures," he said.