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Performance paradox - Dollar’s drop good news for the gold industry

THE Lalor brothers, Peter and Chris, abandoned the legal profession to become two of Australia’s most successful miners, surpassing even their own high expectations.

They floated Sons of Gwalia Ltd. 19 years ago, raising the heady sum of $2 million to begin a modest operation at the mine which bears the company’s name. By the end of next year it will have a turnover of $500 million, achieving continuing growth that has been outstanding in a beleaguered industry, with an average annual return on shareholders funds of 18 per cent over 15 years.

Last June, the company reported its eighth consecutive year of increased earnings per share, and analysts believe there will be more growth in the current year.

That $2 million company now has a market capitalisation of nearly $1 billion, yet it – and its management – remain very quiet achievers.

Except when speaking on behalf of the Australian goldmining industry, Peter Lalor, executive chairman, is unobtrusive, Chris, an executive director, even more so.

The brothers have a long family association with the mining industry as descendants of the pioneering Lalors, who produced Peter Lalor, leader of the rebellion at the Eureka Stockade.

Chris and Peter the younger grew up in Kalgoorlie and worked for many mining companies as lawyers before launching their own business.

The Lalors revived an enterprise which had an august place in Australian history.

The Sons of Gwalia had been the State’s biggest single mine for many years, and among the most durable, producing 2.6 million ounces of gold over a period of 66 years before being closed for two decades.

The tiny town of Gwalia’s historical importance is underlined by a local museum supported by the company. It was established around the well maintained mine manager’s house, once occupied by the onetime US President Herbert Hoover, and the old mine’s headframe.

The brothers have recalled in the past their audacity in seeking $2 million from investors, making the float the first of those which relaunched the Australian gold industry in the 1980s. There was certainly no guarantee of success.

After being pivotal in establishing Western Australia as a strong economy, the gold industry almost disappeared in the decades after World War Two, but was revived by surging gold prices in the 1980s.

Born in Narrogin, the Lalors spent much of their lives surrounded by the mining industry, with a childhood period in Kalgoorlie, and a uncle who was an executive with Western Mining Corporation.

Nevertheless, when they completed their law degrees they chose conventional careers in the legal profession, except that in the case of Peter, much of his early work was associated with the Poseidon nickel boom and the companies that scrambled for capital and tenements at that time.

Chris, while established in a broader law practice in Kalgoorlie, acquired a taste for gold and, when he moved to Perth, the brothers decided to take a direct interest in the industry.

The company has changed significantly in recent years, so that by next year half its turnover will be earned in minerals other than gold, with tantalum the most important.

Sons of Gwalia is the world’s biggest producer of the mineral, used in growing quantities in electronics and other hi-tech industries, and has a major part of global reserves.

He acknowledges that Australian gold miners face a troubling paradox – while most of them are earning sound profits, supported by a weak Australian dollar, investors’ perceptions of the industry remain poor, and capital for new ventures is hard to find.

The industry has never been leaner, with average production costs of about $A320 an ounce, giving a comfortable margin on current spot prices of about $A520 an ounce.

These costs have fallen by nearly a fifth in recent years, although it is becoming increasingly difficult to maintain the trend and future savings are likely to be much more modest.

Peter Lalor, as deputy chairman of the Australian Gold Council, said it was seeking ways to persuade major gold mining companies to invest more in new ventures, rather than expand reserves at existing projects.

“We remain confident that we can continue to generate profits in gold although, like all other Australian producers, we would like to see some recovery in world prices,” he said.

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