The Federal Government has been slammed for further jeopardising investment in Australia’s gold sector at a time the sector was described today as being “a long time between major gold discovery drinks”. Addressing the first day in Perth today of the Paydirt 2012 Australian Gold Conference, Integra Mining’s Managing Director, Chris Cairns, said that despite being the third highest export earner for Australia at A$18.9 billion a year, gold remained unloved by the Federal Government. “What we have is a Government which is encouraging industrial disputes, considering expanding the MRRT to other metals and ignores the fact that any idiot can find a coal or iron ore deposit but gold is invariably in highly complex systems which are difficult to find,” Cairns said.

“On top of that, the Government is looking at cutting the diesel rebate for our mining trucks – which don’t leave the mine sites and don’t use the public roads which the tax pays for – and is removing exploration expenditures as carried forward tax losses. That action will not encourage gold exploration investment, discovery and therefore contributing gold revenues.”

Cairns said it had been a long time between drinks in Australia for major gold discovery – the last being the 5 Moz Tropicana deposit in southern Western Australia – an orebody discovered six years ago. “In the six years since Tropicana, Australia has produced 40-50 Moz of gold but the best recent discovery of 5-6 million ounces was made 7 years ago so our discoveries are not replacing the volumes mined.”

Cairns said Australian gold production had peaked at 300 t/y in 1999 whereas global gold production peaked in 2001. “The perspective gets skewed because of the really dramatic increase in the gold price which has quintupled over the past 12 years,” he said.

“The gold exploration spend has increased but compared to 1990 dollars, has actually decreased by one third compared to the spend in 1997.

“What the equities market has to factor in is that of the Top 10 gold producers in Australia, most of them are very mature mines and will be coming offline over the new few years. I expect Australian gold production to ease to around 200 tonnes per annum in the next five to 10 years. Part of the reason for this is that while the gold price is up significantly, the global all-up cost of gold production is $1,100/oz with forecasters predicting a hike by 2017 to around $1,700/oz. So the gold price has been rising but so too have costs so marginal gold mining operations will continue to remain marginal mines.”

The Integra head pointed to gold’s grassroots exploration spend which had collapsed from 47% of new deposit discoveries across major minerals in 2004 to 35% in 2011. “We are certainly not looking for gold deposits in the same way we used to in Australia.”

A warning was also issued today by one of the sector’s main proponents, the Chamber of Minerals and Energy WA. The biggest challenge facing .Australia’s gold sector is to wind back its alarming rise in production costs where in worst case scenarios they are now nudging $1,200/oz. Addressing the conference, the Chamber’s Director, Damian Callachor, said such a cost profile was “disappointing”.

“There are three contributing factors – labor, energy and grade impacts,” Callachor said. “If we do not start constraining our gold production costs, Australia’s gold costs will be comparable to that of the worst performing country to date, South Africa. This is starting to emerge at a time something like 90 countries around the world can claim to be gold producers and are competing for investment dollars from overseas.

“Australia will become increasingly less attractive as a gold investment play against this backdrop – let alone the ongoing threat that the minerals resource rent tax will be expanded to include gold in addition to July’s carbon tax imposts.”

Callachor said it was easy to overlook the energy intensive nature of gold mining where projects were generally based in regional or remote locations reliant totally or diesel fired energy.

“For those lucky enough to be close to or part of a mainstream power grid, those grid costs also increasing alarmingly – and unlike other commodities, increases in gold production costs cannot be passed onto customers. One solution is to use the high price to process more lower grade gold into the mining and processing stream.”

Western Australia’s “flat” gold sector contributed 8% of the State’s resources output last year worth royalties to the WA Government of A$4.8 billion.