30/11/2020 - 12:00

Bright outlook for gold

30/11/2020 - 12:00

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Investment prospects for gold remain strong, with the potential for Australian production to exceed the record 326 tonnes set in 2019.

Bright outlook for gold
Production at the Kalgoorlie Super Pit fell by 29,000 ounces during the September quarter. Photo: KCGM

Investment prospects for gold remain strong, the potential for Australian production to exceed the record 326 tonnes set in 2019.

That’s despite gold production weakening in the September quarter, according to Melbourne-based consultancy Surbiton Associates.

Gold output totalled 81t in the three months to September 30, down from 85t in the June quarter due to lower production at some of Australia’s largest goldmines.

The Kalgoorlie Super Pit, operated by recently merged businesses Northern Star Resources and Saracen Mineral Holdings, reported a 29,000-ounce drop in production over the quarter, while Newcrest Mining’s Telfer and Cadia East goldmines in Western Australia and NSW fell 27,000oz and 40,000oz, respectively.

St Barbara’s Gwalia operations in WA were also down due to a rock fall in the Hoover decline in mid-September.

Despite the drop in quarterly production, the total value of Australia’s mined output was little changed, Surbiton director Sandra Close said.

“Australian gold production was worth a little over $7 billion at the average Australian gold price for the three-month September quarter,” she said.

“That is equivalent to around $28 billion a year.”

Australian gold prices averaged around $2,670/oz per ounce in the September quarter, Dr Close said, averaging US73 cents.

“The weighted average cash cost of production was less than half the average gold price, indicating that many gold producers have enjoyed healthy profit margins,” she said.

“However, because fewer ounces were produced, weighted average cash costs and all-in sustaining costs rose.”

Australia has produced about 244t of gold between January and September 30, Dr Close said.

At that rate, and with December usually achieving the highest production for the year, output for 2020 could exceed last year’s 326t.

Dr Close said market interest in the gold sector remained high, with many mining companies taking advantage of buoyant gold prices by spending more on exploration and raising further funds from shareholders.

One example is Perth-based De Grey Mining, which raised more than $130 million this year to explore its major Hemi discovery in the Pilbara.

Uncertainty caused by the COVID-19 pandemic had led investors to gold, with the asset outperforming all other major commodities in 2020, according to Melbourne-based EFT Securities.

The firm has identified four trends that will continue to cast gold as an attractive investment in 2021: focus on real yields, strong EFT flow, economic growth, and responsible goldmining.

Head of distribution Jaspar Crawley said real yields would continue to drive the gold price.

“With positive news about COVID-19 vaccines coming in now from three different sources, we see real yields becoming a bit more positive,” he said.

“Gold has had a correction recently but, in the medium to long term, it will continue to remain well supported on the back of high fiscal deficits, low or negative interest rates, low or negative real yields and a weaker dollar.”

Mr Crawley said economic growth rebounding in countries like China would support the long-term demand for gold.

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