Commodity focus: Gold

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 28 Aug 2017   Posted by admin


Image: Gold Industry Group


BY ELIZABETH FABRI


WHILE the price had not yet returned to 2016 highs of $US1357 per ounce, on 11 August the price recorded a two month high of $US1289 – about $A1620 — leaving many miners optimistic for the year ahead.


At last month’s Diggers and Dealers conference, more than 2100 miners, investors and service companies touched down at one of Australia’s oldest gold towns, Kalgoorlie, WA, to celebrate the industry across three days of informative sessions, networking events (and late night soirees).

While many commodities were covered across the forum, it was gold that dominated discussion with many conversations had on and off-site on the commodity’s ‘comeback’ amid a weaker US dollar, and war of words between US President Donald Trump and North Korea.

Australia’s second largest gold miner Evolution Mining’s executive chairman Jake Klein was one of many to share their views on the gold’s movement, dedicating a large portion of his speech to a “renaissance” that was occurring in the Australian gold industry.


“It’s fair to say the last three years in the sector have been relatively good. The number of times the word ‘record’ was used in the recently released June quarterly reports of ASX listed gold miners was unprecedented,” Mr Klein said.


 “The Australian gold industry has had a much better time – we have benefited enormously from a falling Australian dollar and declining costs.

“It is a place I often refer to as God’s gift to miners – a vast, highly mineralised, under populated, mining friendly country where the rule of law can be relied on.”

According to the Gold Industry Group, Australia contained the largest share of known gold resources in the world (16.3 per cent), with gold mining contributing a massive $13.4 billion to Australia’s economy in FY17, and annual exports of $16 billion in FY16.

Gold exploration was also increasing, with exploration expenditure rising by 30 per cent to $653.5 million in the year to end March 2017, according to the Australian Bureau of Statistics.

Companies such as Gold Road Resources were ramping up exploration campaigns, with the company last month announcing it would be spend $30 million on greenfield exploration this financial year.

Perth Mint’s stats over the last financial year was another barometer of the sector’s strength.

Perth Mint chief operating officer David Woodford said the quality of Australian gold and the certainty of supply had seen gold exports to China dramatically increase in recent years, with Chinese investors buying more than 230 tonnes of gold bullion on the Shanghai Gold Exchange last year, worth $11 billion.

“In 2014, The Perth Mint became the first foreign refinery accredited on the Shanghai Gold Exchange and we have worked steadily to establish this new market,” Mr Woodford said.

“Today we are on track to achieve our goal of becoming the biggest source of imported gold in the Chinese market and that is great news for Australian gold producers and Australian mine workers.”

Australian gold exports into China more than doubled from 110 tonnes in 2011, and in the last 12 months alone had grown more than 8 per cent.

“Our direct relationships with the banks have enabled us to lift our sales volumes and we are confident this market will continue to grow,” he said.

However, Mr Klein said it was important for gold producers to err on the side of caution.

The seasoned executive said there were plenty of opportunities ahead for Australian gold producers, but unless companies demonstrate they have learnt the lessons from past cycles they will end up in the same place “relegated to the investor sinbin after destroying shareholder value”.

“The harsh reality is that even in a benign US dollar gold price environment and a favourable Australian dollar gold price environment the gold industry, as a group, has had difficulty creating and delivering value consistently,” Mr Klein said.

“Egizio Bianchini, the co-head of BMO Global Metals and Mining Group and friend of mine, cautioned the sector earlier this year when he was quoted as saying ‘there is more capital than brains to deploy it. I hope that this time, the miners have found that out’.

“Let’s take on the challenge of proving Egizio wrong.

“I believe the Australian gold sector has an outstanding opportunity in front of it.”