Gold pushes past pandemic panic

Prospects for gold were dire in mid-March as the COVID-19 pandemic unsettled world markets.

As investors fled from many asset classes, the historically stable commodity was also hit, with the price falling to a year-low of $US1,469 per ounce.

The plunge was short-lived, however, with investors returning to gold within weeks as other commodities markets cratered amid global economic uncertainty.

By mid-April the price of gold had bounced back, reaching $US1,685/oz before exceeding $US2,000/oz by early August.

That was higher than any point in 2019, and represented a boon for Western Australia, the commodities and resources markets of which are dominated by iron ore and gold exports.

After the first-quarter slide, gold has had a bumper year, with the price reaching an all-time high of $US2,066/oz and Australia producing a record 10.5 million ounces.

That output is worth almost $25 billion at the average gold price, according to Melbourne consultancy Surbiton Associates.

Director Sandra Close said while the COVID-19 pandemic had restricted exploration for some mining companies due to travel restrictions, the virus had no impact on Australia’s gold production.

“I cannot recall so much interest in gold since the modern boom began almost 40 years ago,” she said in August.

“There is a high level of activity overall, from investment, increased capital raisings and initial public offerings, to greater exploration and drilling and a scramble to peg new ground.”

Australia’s gold production is forecast to reach a record 12.4 million ounces in 2021-22, as record prices encourage an expansion in production, according to the latest Resources and Energy Quarterly. 

Gold exports, which stood at $21 billion at June 30, are expected to reach a record $31 billion before declining to about $28 billion in 2021-22, as gold prices ease on an expected global economic rebound.

The nation’s five largest goldmines include US-headquartered Newmont Corporation’s Boddington mine, which delivered 673,000oz in the prior financial year, and AngloGold Ashanti and IGO’s Tropicana joint venture in the Goldfields (463,556oz).

And while WA’s production was up slightly to about 6.7 million ounces, the state contributed roughly 63 per cent of Australia’s total gold output.

South African-owned Gold Fields became WA’s largest goldminer after dethroning Newmont and producing a total 973,000oz from its four mines in the Goldfields.

Those mines include the new Gruyere joint venture with Gold Road Resources, which officially opened in December last year.

Gold Fields’ rise was also helped by the sale of Newmont’s 50 per cent shareholding in the Kalgoorlie Super Pit halfway through the financial year, which dented the US miner’s annual production by about 16 per cent.

Newmont sold its share in the pit to Northern Star Resources for $US800 million, boosting Northern Star’s annual production by 16 per cent, to 731,000oz.

Fellow Super Pit owner Saracen Mineral Holdings, which acquired its stake in the asset from Canada’s Barrick Gold for $US750 million in November, produced a record 520,000oz.

Saracen expects to produce up to 640,000oz of gold in FY21. 

Managing director Raleigh Finlayson said the company had transitioned to the big league of ASX gold producers.

“Our production rate is now running at [more than] 600,000oz a year and our cost base is still tight,” Mr Finlayson said in August.

“This means we are perfectly positioned to capitalise on the strong gold price and continue generating strong growth in our cash flow.”

Saracen and Northern Star recently announced plans to merge to become a top 10 global gold producer. The combined group would have a market value of $16 billion.

Both companies operate the Super Pit under the Kalgoorlie Consolidated Gold Mines (KCGM) banner.

In August, the joint venture confirmed the Super Pit would produce gold until 2035, including between 440,000oz and 480,000oz in the current financial year.

KCGM expects production to rise even further from FY24.

The Super Pit would likely rejoin Australia’s top goldminers, Dr Close said, once issues with two large wall slips from May 2018 were remediated.

That could take about three-and-a-half years, as flagged by Saracen in November last year.

HopgoodGanim partner of resources and energy Paul Harley told Business News it was good news the Super Pit was back in Australian hands, with Northern Star and Saracen both headquartered in WA.

“They clearly bought it with a plan to put some time and effort into it; to them, it’s the jewel in their crown,” Mr Harley said.

However, even with production returning to normal levels, he said it was unlikely the Super Pit would dominate WA’s gold sector.

“The good thing about gold is that it's not a supply and demand driven commodity,” Mr Harley said.

“You can increase supply … you can increase production out of an asset like the Super Pit, but that doesn’t depress the price and dominate the market.”

He said while WA was abundant in both gold and iron ore, gold was arguably more valuable to the state.

This was because iron ore was limited to industrial use, whereas gold was a store of value and also used in jewellery and other service industries.

“There’s no limit to the gold market,” Mr Harley said.

“While the big dollars go through the ports with iron ore, and those are the eye-popping, GDP-moving numbers that everyone talks about, I think the gold sector is even more important for the WA economy.”

Mr Harley said the gold sector had a large number of companies relative to iron ore, which was dominated by BHP, Rio Tinto and Fortescue Metals Group.

Directly, WA’s gold sector employs about 26,000 people while iron ore employs about 48,000, according to the Department of Mines, Industry Regulation and Safety.

But Mr Harley said that, when considering the flow-on effects of gold exploration, it was likely the sector created more jobs and had a greater economic multiplier. 

“The gold sector has hundreds of companies out there exploring, and so the economic kick-on is actually felt more widely through WA than sometimes what’s happening in iron ore,” he said.

“Think of all the drillers, geologists, environmental, heritage, surveyors, and then the support services they consume.”

Mr Harley said the gold sector, driven by exploration, led to a greater involvement of smaller players and WA businesses.

Gold exploration accounted for about 70 per cent, or $1.2 billion, of WA’s $1.7 billion total spend on mineral exploration in FY20, as stated by the Department of Mines late last month.

By comparison, iron ore accounted for $361 million of the total exploration spend, while copper accounted for $420 million, and nickel and cobalt $203 million.

The latest figures come shortly after the Department of Mines reported a 63 per cent rise in the number of program of work (POW) applications being approved for the month of August.

According to the department, the monthly average of POW applications, 195, had increased to 317, with 70 per cent of these for gold projects.

That comes two months after the timeframe for approvals was halved from 30 business days to 15 in July, as part of the state government’s Streamline WA reform initiative.

Investment in WA’s resources industry overall has also improved, the Department of Mines said, rising from $17 billion to about $19 billion in the year to June 30.

HopgoodGanim estimated that $1.4 billion in working capital has been raised by WA-based gold companies since the start of the year, with the vast majority of raisings completed by junior miners.

That includes Perth-based De Grey Mining, which recently completed a $100 million share placement, the seventh-largest capital raising by an Australian resources company this year.

Melbourne-headquartered Newcrest Mining, which operates Australia’s most productive goldmine – the Cadia asset in NSW (843,338oz in FY20) – sits in third spot for the largest capital raisings after completing a $1 billion placement and share purchase plan in April.

Meanwhile, Perth-based companies Bellevue Gold, Capricorn Metals, Dacian Gold, Emerald Resources, Red 5, and Resolute Mining collectively raised more than $600 million in 2020.

Capricorn raised capital for its Karlawinda gold project in the Pilbara (June 2021 quarter commissioning), while Bellevue sought funds for its namesake project in the Goldfields.

Mr Harley said there was more corporate transaction activity within the gold sector that, in turn, provided further flow-on employment and economic benefits to consultants and advisers.

He said HopgoodGanim, which recently launched a tenement management business, identified more movement and activity around tenure. 

“We are certainly seeing miners and explorers rationalising their holdings and some surprising activity levels during the pandemic from newcomers and smaller players looking to take advantage of opportunities at the moment, particularly around gold,” Mr Harley said.

He also noted a number of successful gold initial public offerings this year, with more in the pipeline.

Copper and gold explorer Cobre, which owns projects in WA, raised $10 million from its IPO and subsequently listed on the ASX in January, while Northern Territory explorer Castile Resources raised close to $18 million and listed in February.

Perth-based Kaiser Reef and Manuka Resources, which own projects in NSW, also listed this year.

Meanwhile Miramar Resources and Victoria-focused North Stawell are scheduled to list on the ASX this month, having launched $8 million and $10 million IPOs. Pathfinder Resources, Siren Gold, and SSR Mining are likely to join them.

Mr Harley told Business News more successful gold IPOs were likely.

“We expect a few more coming out in the near term before Christmas and the market takes a breather for a couple of months, and then if market conditions continue, [IPOs] will pick up again in February and March,” he said.

“The IPO gold window is wide open, and people are taking advantage of it.”   

Mr Harley said the pandemic had indirect benefits to WA, after mining companies became restricted to exploring within the state.

His comments come as WA’s mining royalties surged about $70 million to a record $361 million in FY20, according to Department of Mines data.

“We have some of the best junior explorers in terms of personnel, geologists and mining engineers and accountants that run these very entrepreneurial characters, which sit here in Perth and look for minerals around the world,” Mr Harley said.

“They are now looking in their own backyard at some interesting projects that otherwise might have been unloved.

“We’ve got this huge wealth, knowledge and experience in minerals exploration, including in gold, in WA, suddenly looking at aspiring gold assets.

“I think the future is bright for junior goldminers.”