27/10/2016 - 12:23

Inflation risk could bring gold demand

27/10/2016 - 12:23

Bookmark

Save articles for future reference.

Interest from North American pension funds could help drive continued strength in the gold sector, although tax competitiveness and policy stability will be important, according to industry leaders.

The Leonora mine operated by St Barbara. Photo: Attila Csaszar

Interest from North American pension funds could help drive continued strength in the gold sector, although tax competitiveness and policy stability will be important, according to industry leaders.

Speaking at the launch on the Chamber of Minerals and Energy and Minerals Council of Australia’s next book Rush, Australia’s 21st century gold industrySt Barbara managing director Bob Vassie said the Australian gold sector had doubled in the past decade and there was no reason it couldn’t double again.

That would be driven both by innovation and productivity improvements.

“As an example with the mine we have in WA, with the same team, same ore body, same footprint we’ve gone from 180,000 ounces (per annum) four years ago to 267,000 ounces … through tonnage productivity,” Mr Vassie said.

“A lot of people see short reserve lives in the Australian industry, but we have the biggest reserve position in the world.”

He said that demand growth could be underpinned by North American pension funds.

“There’s just so many factors that drive gold,” Mr Vassie said.

“Demand is driven largely by jewellery, and that can be quite fickle; that’s normally about 57 per cent (market share).

“For the first half of this year, investment gold overtook the first position of jewellery.

“And when you look at successive waves of quantitative easing – people are starting to look to gold a bit more.

“Even if you start to see these large international or North American pension funds even put half a per cent of their portfolio values into gold, it would just go through the roof.

“I think there’s a structural shift there happening as paper money becomes questionable.”

Policy outlook

One key area where the government could support the industry was through improving the competitiveness of the tax system, Finance Minister Mathias Cormann said.

Senator Cormann highlighted the federal government’s moves to cut the company tax rate to 25 per cent over 10 years as important to the export-oriented gold industry, contributing to lowering costs.

But he added that state taxes also needed consideration.

“I’ve said this on a number of occasions already but I’ll say it again; the mining tax proposal put forward by the leader of the national party here in WA is bad public policy,” Senator Cormann said.

“If it was pursued it would be bad for WA and in particular bad for regional WA.”

Although the tax doesn’t specifically apply to the gold industry, concerns have been raised by mining industry representatives that it could damage the state’s credibility to international investors.

Northern Star Resources managing director Bill Beament said it was important not to change policy on the run, citing the example of the resources super profits tax in 2010.

“When there was the toss around about the fuel rebate, most of the fuel I use, diesel I use in my business is actually in power generation,” he said.

“It definitely never sees the road.

“We don’t treat that as a rebate, we shouldn’t be paying it because we’re not using what it’s designed for.

‘“This stuff that’s going on at the moment in WA is just disastrous.”

Mr Beament said half of Northern Star’s share register was offshore ownership.

“The bulk of them are institutions, compared to domestic it’s sort of two to one,” he said.

“The institutional money here in Australia it’s not specialist funds … it’s just generalist money.

“Overseas are specialist gold funds that invest in the longer term.

“When you want to raise money to build a new mine or whatever, they’re the ones that actually back it.

“It’s like death by a thousand cuts, every time we change policy they get more and more (irritated).”

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options