Restoration by year’s end of an annual production of 4 Moz of gold has been set by Gold Fields – whose assets include Western Australia’s St Ives mine – under what the company today described as the compelling fundamentals of the current strong gold price. Addressing the first day in Perth today of the Paydirt 2009 Australian Gold Conference, Gold Fields’ Executive Vice-President, Exploration and Business Development, Tommy McKeith, said the gold price had trended upwards since July 2005 and was now maintaining a position in the high $900s an ounce.
“For a gold miner, that near four year upwards price trend, combined with the current strong price, delivers strong upside potential,” McKeith said. “As a result, and under our strategy launched last year to release further value from our global gold operations, we have targeted achieving the 4 Moz annualised rate from low of 3.5 Moz, by the end of this calendar year – and we are on track for that currently,” he said.
“This has, however, required enhancements in how we operate including step changes in safety, completing a rehabilitation of some our mining infrastructure, delivering capital growth projects, sweating the assets and investing more heavily in exploration. As a result, Gold Fields has recently achieved its best year-to-date safety figures since 1999, rehabilitation work was completed on schedule on our Kloof, Drifontein, and South Deep Ramps operations – and expansion projects running into the hundreds of million dollars were completed by December last year at Tarkwa, Cerra Corona and the two new underground mines at St Ives. St Ives is producing significantly higher grades and it is our belief this mine has from our perspective, finally turned a corner.”
As a result of the changes, Gold Fields’ cash costs have now come down to around $470/oz compared McKeith says, to “about $600/oz a couple of quarters ago”.
“With the completion of our major capital cost projects, we are now settling down to capital expenditure of around $180 million a quarter compared to a high of $330 million a quarter in calendar 2008 – so we are starting to release true value from our operations.”
McKeith said Gold Field’s was not going to enter into “any merger and acquisition heroics” as “it is not a good time to be buying gold assets and you won’t get a lot of value from the opportunities presenting. Instead, we will be using our improved cash flow position to invest more heavily in exploration.”
However, at the same conference, the perception that a retreat to gold is a sound value decision and a safe haven against commodity and equity market collapses globally, was questioned by a senior bank economist. Westpac Economic research Senior Economist, Justin Smirk, said gold had a good future “but was close to its peak price. It will continue to do well but it will be outperformed by other rebounding commodities which will move faster as economies recover.
“Gold is a good buy now as a hedge but perhaps not for much longer in terms of comparison against other metals. The world deflationary spiral has and is currently keeping gold below $1,000/oz and I don’t expect it to get back above that, or not by much, for about two years.
“In real terms and looking at the past 100 years, gold’s value in Australia has not returned to inflationary levels of the 1980’s which is around the equivalent of $1,600 an ounce. The metal will need an outbreak of inflation to have a strongly positive future – but that means other commodities will also be benefiting at the same time and I would expect, outperform gold in every way – so on that basis, we question the perception of its true value.”
Smirk said Westpac’s forecasting suggested a gold price of around $914/oz in 2010, rising to $1,063 in 2011 and $1,150 in 2012 – but the bank’s own parallel forecasts for copper suggested the copper price performance would outperform gold over that period on a percentage basis. He acknowledged that the current rush to gold was hardly surprising as cashed up China and European economies – which would have invested a large share of their funds in the US – had turned away from that due to the American economic downturn – and gold has been a short-term benefactor.