By Anthony Fensom
Australia’s gold miners have broken production records amid record high prices and a surge in investment and exploration activity. Are the good times here to last for the precious metal?
Amid a new gold rush, Australia produced a record high 327 tonnes of gold in 2020, despite the challenges caused by the COVID-19 pandemic, according to Surbiton Associates.
Among last year’s milestones was the “deal of the year,” the sale of the Super Pit from Barrick Gold and Newmont to Saracen Mineral Holdings and Northern Star Resources. The Super Pit’s buyers subsequently merged to become Australia’s second-biggest gold miner.
The Super Pit was the fifth-largest producer of Australian gold in 2020 with around 453,000 ounces, while Newcrest Mining’s Cadia East operation topped the list with 822,478 ounces.
More records may tumble for Australia’s gold sector, with the nation projected to become the world’s top producer in 2021 with 384 tonnes of output, according to the March 2021 Resources and Energy Quarterly produced by the Office of the Chief Economist.
Higher prices are expected to increase the value of Australia’s gold exports to a record $29 billion in fiscal 2021, according to the government forecaster.
Australia’s gold mine production is projected to expand at an average annual rate of 5.7 per cent from fiscal 2021 to 2024, peaking at 410 tonnes in fiscal 2024.
Growth is expected to be driven by mine expansions and reactivations, together with new mines, including Red River’s Hillgrove mine in New South Wales and NQ Minerals’ Beaconsfield mine in Tasmania.
Expansion projects include St Barbara’s Gwalia Expansion in Western Australia and the Tropicana Expansion project, together with expansions by Newcrest Mining and Newmont.
New discoveries
Explorers have been buoyed by new discoveries, such as De Grey Mining’s Hemi discovery in WA, which has spurred a “21st century gold rush” in Australia’s top mining state.
Overall, Australia’s gold exploration expenditure increased by nearly 16 per cent in 2020 to reach $1.3 billion, nearly half the nation’s total exploration spending.
WA’s mines department reported $17 billion of gold sales during 2020, a record high, on the back of a record average gold price of $2500 per ounce.
The state is expected to remain Australia’s largest gold producer, accounting for 68 per cent of total mine output in fiscal 2021, according to the Office of the Chief Economist.
“These are fantastic times to be a gold explorer in Western Australia, home to some of Australia’s biggest discoveries,” Platina Resources managing director Corey Nolan says.
“Investors are backing the sector and with exploration increasing we will undoubtedly see more new discoveries in the Pilbara and elsewhere.”
Platina is building its gold presence in WA, recently signing a term sheet to acquire the Xanada gold project near the multi-million ounce Mt Olympus deposit.
It has also announced the start of drilling at its part-owned Munni Munni project near Karratha, which it described as one of Australia’s largest undeveloped palladium deposits.
Platina also plans a maiden drilling program at its wholly owned Challa gold project, located in between the prolific Mt Magnet and Sandstone gold districts.
Other explorers are seeking to follow in De Grey’s footsteps, including Sayona Mining, which has a portfolio of gold and lithium projects in the Pilbara region.
The company is targeting intrusion-related gold mineralisation similar to the Hemi discovery, with some tenements located in close proximity to Hemi.
In April, Sayona announced a 3900 line kilometre airborne magnetic survey over its Deep Well and Mt Dove projects, as it plans to identify targets for drilling in 2021.
Sayona managing director Brett Lynch says the company is encouraged by the potential of its WA exploration assets.
“The commencement of exploration over our 100 per cent owned Pilbara gold portfolio has identified a number of targets for further exploration and drilling in the 2021 season,” he says.
“It is anticipated the studies and proposed geophysical work will build up targets which will focus exploration and unlock the prospectivity of the large tenement holding that Sayona has close to the Hemi discovery.
“We also remain excited by the potential of our WA lithium assets, located in the world-class Pilgangoora lithium district, which add to our flagship lithium projects in Canada.”
Bright outlook
While rising global growth and higher bond yields have weighed on gold prices in 2021, increased inflation and a weaker US dollar should see prices rising again, according to ANZ Research.
“With policymakers still advocating immense policy support, the likelihood of bond yields falling is low. However, we now expect US inflation to hit 2.5 per cent this year,” an ANZ report from February states.
“Combined with further depreciation in the (US dollar), we see gold’s fair value at $US2000 ($2581) per ounce in the second half of the year.”
The bank’s economists note that “gold performs best when inflation is rising, rates are falling and the (US dollar) is weak.”
However, other analysts are less bullish, with Fitch Solutions projecting an average gold price of $US1780 per ounce for 2021 and Capital Economics expecting $US1600.
A Reuters poll of analysts and traders conducted in late April found a median forecast of $US1784 for 2021 and $US1743 for 2022.
On May 12, gold was trading at $US1832 per ounce on COMEX, down from its 2020 high of $US2056.
Other factors influencing the precious metal include the risks of rising geopolitical tensions, with gold seen as a safe haven in times of crisis.
In its April 29 report, the World Gold Council (WGC) notes that strengthening consumer demand is mitigating the impact of outflows from gold exchange-traded funds.
Gold “retains its relevance in well-balanced portfolios, especially with a risk of inflation looming. Looking ahead to the rest of the year, we see reasons to be optimistic about the gold market as its main drivers remain well supported,” WGC senior markets analyst Louise Street says.
With more records set to be broken by Australia’s gold miners, the local industry sees plenty of reasons for optimism.