The once magical $1,000/oz price for gold – once considered unachievable – will be increasingly regarded more as the future “bottom out” floor price in the immediate years ahead, according to a senior Westpac economist. Addressing the first day in Perth today of the Paydirt 2010 Australian Gold Conference, Westpac Senior International Economist, Huw McKay, said the gold price had stepped up year on year by about $100/oz above predictions, for at least the past five years. His was just one of many interesting presentations.
“What we did not know was going to happen was that we were going to have such an enormous collapse in risk appetite that pushed gold beyond the $1,000 magical barrier,” McKay said. “That has changed gold trends forever and what was once an invisible ceiling, is now more a level where we talk about the $1,000/oz price as more of a floor price going forward. It is now being seen as the level at which any plunge in the gold price will start to pull out of such a dive.”
McKay attributed the gold price pressures as due to two main factors – the change in demand for jewellery – from two thirds of world gold consumption in 2007 to around 40% currently. “In parallel with this, there has been an expansion in exchange traded products which have grown from accounting for 7% of total gold consumption in 2007 to 19% now. This is a dramatic trend movement move and it is here to stay,” McKay said.
“World equity markets and financing has so much uncertainty to it that the allure of gold has never been stronger. Demand for gold has shifted to the investor, with very strong fundamental trends coming together to fuel investor appetite for things they can see, touch, hold and put in a warehouse. Gold certainty meets that criteria.”
McKay said the turn towards gold had come out of all other asset classes as “investors try to get into something that holds value”.
The Westpac executive predicted gold holding at around US$1,006/z by the end of this year, moving only slightly higher to around $1,030 by 2011. “We do not see immense upside in gold but it is certainly there,” McKay said.
Production at Australia’s new 1 Moz/y super gold mine, Newmont Boddington Gold in Western Australia, is expected to reach full production by the end of this calendar year. The “on track” ramp-up forecast was announced today. Newmont Asia Pacific’s Regional Group Executive – Operations, Philip Stephenson, in the opening address to the conference, said the planned 12 month ramp-up schedule at Boddington, 130 km southeast of Perth, is “on track and is currently about 70% complete”.
The first gold at Boddington for “Newmont’s cornerstone asset for many years to come” Stephenson said, was poured and shipped in September last year “with recoveries for both gold and copper above design expectations. The ramp-up is at about 70% and climbing and we anticipate reaching full capacity late in 2010 as this is a mega project and will correspondingly take time to ramp-up,” he said.
“Newmont will however continue to further develop this underexplored and highly prospective greenstone belt – so do not be surprised if this operation goes for at least 30, maybe 40 years.”
Newmont is also a 50% owner in Western Australia’s giant Superpit gold mine at Kalgoorlie, as well as the Jundee mine (WA), Tanami mine (NT) and Waihi gold (New Zealand).
On global gold equity markets, Stephenson said there had been a huge growth in Exchange Traded Fund holdings with almost 600 t of gold going into ETF holdings in 2009 as investors sought greater insurance against global economic uncertainty by boosting physical stocks of gold.
“This has increased ETF holdings to just below 45 million ounces or around 75% of annual mine production globally for the entire industry,” Stephenson said. “To put this gold movement into perspective, the flight to gold in 2009 was twice what we saw in 2007 and 2008.”
Stephenson said the operating outlook for Newmont for 2010 was total gold output of 5.3 to 5.5 Moz at around $450-480/oz, which is expected to improve to around $310-340/oz with copper credits for Boddington and Batu Hijau taken into account.
The Western Australia Government has been warned to “put on ice” any pre Budget aspirations to impose higher royalties on the State’s massive A$72 billion plus per annum production value from its resources sector – or put at risk the sector’s post GFC resurgence. Addressing the first day, Chamber of Minerals and Energy of Western Australia, Chief Executive, Reg Howard-Smith, said there was on a conservative basis, some A$135 billion worth of resource projects currently committed or under consideration in WA.
“The implications in Western Australia of any mooted higher local state taxes on mining, are severe – and have their own impacts quite separate from any national rise under reports the Henry Tax Review will further tax resources,” he said. “The WA resources sector pays some A$3 billion in royalties per annum – a 137% increase in royalties over the past five years – and it comes from gold and all other minerals sectors in WA.
“While there are areas of WA mining that have been doing very well, the resources sector is not homogenous – and the WA Government should be engaging with the mining and exploration industry if a State mining tax hike is being mooted,” he said. “To increase royalties across the board would be folly to long-term success of existing and start-up mining projects, particularly as we are also have to guard against a repeat of the skills and materials shortages of not so long ago that plagued mining costs. If the sector has to succumb to a higher state and Federal tax impost, not only will the industry be paying more but it is also hardly the much touted simplification of Australia’s taxes on mining.”
Howard-Smith said the Chamber would continue to oppose any push to have the approvals process for mining infrastructure in Western Australia, handed over to Canberra. “The WA Government has been largely responsible for multi-user mining infrastructure and there is also undoubtedly a lot of private infrastructure developed – and it has been a good mix of private and public infrastructure, even though some bottlenecks are looming. If however, you take away the revenue stream from a State Government, and the link between approvals and project income stream, then the provision of infrastructure will not happen.”
An annual production in excess of 100,000 oz/y of gold per annum by 2012 has been forecast by resurgent Coolgardie gold producer, Focus Minerals. Addressing the conference, Focus Minerals’ CEO, Campbell Baird, said the invigoration of the company was being successfully driven by its successful refurbishment of the Three Mile gold mill and an aggressive exploration thrust.
“Three Mile has increased output from a rate of 400,000 t/y and was last month running at 1.0 Mt/y – well towards our target of 1.2 Mt/y,” Baird said. “Critically, the gold recoveries are consistently above 90% and as well as our own gold, this is now starting to attract increasing third party interest in toll treating opportunites at Coolgardie. In April, we will be toll treating 100,000 t for La Mancha Resources. Operating costs are also within the expected range.”
The no-debt Focus is pushing ahead with developing and mining of its flagship Tindals Mining Centre including its Perseverance, Empress, Countess and Tindals underground orebodies. Baird said total production for calendar 2010 is expected to be 80,000 oz with that pushing out to 100,000 oz in 2011 before moving above that milestone in 2012.
The newest discovery at Western Australia’s third largest gold mine – the Athena deposit at St Ives in the Kambalda region south of Kalgoorlie – will go underground by December this year. St Ives’ owner, Gold Fields, said the push underground with Athena and ongoing exploration success is targeting an extension to the mine’s life of 10 years.
Gold Fields Executive Vice President, Tommy McKeith, said new exploration at St Ives’ Athena deposit was confirming higher and wider grade mineralisation than had previously been mined. “This has positioned Gold Fields to have Athena in full underground gold production for the first time by mid 2011 after start-up at the end of this year.”
The mine – which has been in modern era production since 1980 – celebrated its 10 Moz milestone in December last year – nearly half of that under the tutelage of Gold Fields’ ownership for the past four to five years. The company has already added more than 3.65 Moz in reserves since acquisition. The mine is fed by multiple ore sources with at least four of those in the plus 2 Moz category – with a spate of recent new discoveries increasing the potential mine life.
Gold One International says it expects to double production rates this year at its flagship Modder East gold mine in South Africa – but has forecast even higher outputs by next year. Company President, Neal Froneman, said the Modder East underground gold mine was relatively “shallow” at about 300 m compared to more normal 2,000 m deep South African gold miners – considerably enhancing mine margins and higher productivity rates.
“We have commenced a scale-up in production and are currently running at around 60,000 oz/y but will push this out by year’s end to between 100,000 and 120,000 oz,” Froneman said. “Our focus is to make sure Modder East continues to deliver on this ramp up and achieve a steady rate of between 150,000 and 180,000 oz from 2011.”
Gold One is finalising a debt facility over the next two months to service end-of-year puts of convertible notes by bondholders. Froneman said negotiations are currently being progressed with four shortlisted banks to secure a senior secured debt facility with final non binding proposals received last month from all four. Modder East has an initial mine life of eight years with potential for significant longer life. First gold was poured in July last year from an intial reserve of 7.65 Mt @ 5.5 g/t Au. Initial production since late last year has been at a cost of around $593/oz produced.