Australian gold sector ahead of the pack

Mr Klein would be even more pleased now, with cost reductions continuing and the gold price in Australian dollars having increased since then.

The graph shows costs for Australia’s main mid-tier gold producers as of the December 2015 quarter. Costs refer almost entirely to operations in Australia.

As can be seen, the producers involved were all showing healthy margins (gold price minus costs), of over A$500 per ounce.

Although exact figures are not available, gold producers have probably reduced their costs by at least 20% in the last two years. This is a result partly of their own efforts (e.g. through innovation, reducing strip ratios and/or mining areas with the highest head grades). But it is also a result of the resources downturn generally, which has led to substantial falls in costs for labour, equipment and fuel.

To illustrate: the cost of diesel – used by most mines in Western Australia (the main gold-producing state) as their main source of power – has more than halved in the past 18 months.

Reflecting these developments, gold producers are in an expansive mood. For example:

– St Barbara talks of “improvement projects”, to include underground waste storage and an ore-pass system at Gwalia in Western Australia

– Evolution Mining plans to expand at several mines, for example, through moving underground and open-pit cutbacks

– Regis Resources is looking at infrastructure requirements for its McPhillamy’s gold project in New South Wales

– Saracen Mineral Holdings is in the throes of doubling production

– Northern Star Resources plans to spend A$74 million this financial year on exploration and capital investment

The graph does not show Newmont Mining or Newcrest Mining (Australia’s two leading gold producers) or AngloGold Ashanti, as they report costs on a global, not an Australian, basis. However, they too are in an expansive mood.

For example, Newmont Mining plans a major expansion at Boddington in Western Australia and development work (including upgrading the processing plant) at Tanami in the Northern Territory; Newcrest Mining is in the process of expanding the carbon-in-leach circuit at Telfer in Western Australia; and AngloGold Ashanti is considering expanding mining at Tropicana in Western Australia.

While much of the mining sector is languishing, gold presents an encouraging picture.