Five big WA gold mines at risk of closure: analyst

Market research firm IBISWorld has identified five large gold mines in Western Australia set to shut down by 2025 because of low reserves, less than a month after a prominent gold mining consultancy rejected reports that Australian gold production is set to fall substantially.

Despite the Australian dollar gold price reaching an all-time high of $1,919 per ounce last week, IBISWorld says several prominent Australian gold mines are likely to be decommissioned due to rising operational costs and declining reserves during the next five years.

This includes Gold Fields’ 7.5 tonnes per annum Agnew project, Regis Resources’ 11t/year Garden Well gold project, Northern Star Resources’ 9.4t/year  Jundee gold project, and Newcrest Mining’s 13t/year Telfer gold operation, all of which are in WA.

“Currently, several major miners do not have known gold resources available to replace their deteriorating reserves, which IBISWorld believes will present a threat the mining support services industry,” it said.

IBISWorld senior industry analyst Jason Aravanis said the current shortage of known gold resources was attributable to a significant reduction in exploration during the past decade.

“When the price of gold reached a peak of $1,895/oz in 2011, Australian miners aggressively expanded capacity through taking on significant debt,” he said.

“However, the halving of the gold price between 2011 and 2015 forced these debt-laden miners to take heavy impairments and implement intense cost-saving measures.

“As mineral exploration was considered an expensive high-risk high-reward activity, it was significantly reduced.”

Mr Aravnis noted that in Australia mineral exploration activity was currently at its highest point in the past five-year period, with gold exploration expenditure increased by 18 per cent in 2018, to $891 million.

“However, even if major gold resources are quickly discovered, this is unlikely to provide sufficient support to the industry,” Mr Aravnis said.

“This is because gold resources typically take over a decade to be developed into operational mines. Despite the benefit of a rising gold price, the gold mining industry is likely to struggle.”

In late May, Surbiton managing director Sandra Close said some recent media reports that Australian mines were running out of gold and that Australian gold production would fall by up to one-third was "rather fanciful".

“There are many factors that affect ore reserves and therefore the life of each mine,” she said.

“I cannot predict the future but at the moment there do not appear to be major causes for concern on the horizon.”

Australian gold production for the first three months of 2019 totalled 78t, the highest March quarter output since 1998, according to the Melbourne-based firm.