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Australia gold output rises despite wet weather

28th November 2016

By: Creamer Media Reporter

  

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PERTH (miningweekly.com) – Australian gold production during the three months to September rose to 75 t, despite severe weather conditions that affected some operations in the Eastern states, gold mining consultant Surbiton Associates has revealed.

The September quarter production was a 1 t increase, or a 2% improvement, over the June production, and was 2 t, or 3%, higher than the previous corresponding period.

“It was a good performance given the wet weather that took its toll on some of the gold producers in New South Wales, Victoria and South Australia,” said Surbiton director Dr Sandra Close.

“Overall, local producers have continued to take advantage of the higher Australian dollar gold prices that have prevailed for much of 2016.”

In November, gold prices spiked to nearly $1 340/oz (A$1 760/oz) in the run-up to the US Presidential elections. This followed the Brexit vote in the UK in June when local gold prices rose to a record of more than A$1 830/oz.

“Although the prevailing local gold price is considerably below these peaks, it has still been pretty encouraging,” Close said.

“So far, throughout much of 2016, gold has traded in Australian dollar terms mostly between A$1 600/oz and A$1 800/oz and averaged near A$1 700/oz.” 

Close said that the various hedging mechanisms that had attracted much criticism when gold prices were rising between 2003 and 2011, had come back into favour, with the two recent sharp peaks providing gold producers with brief opportunities to lock in gold sales at attractive prices.

“Hedging, by forward sales mechanisms or the use of put options, is a legitimate method of reducing risk, locking in higher prices and guaranteeing future cash flows,” Close said.

“Rather than being a form of ‘speculation’ it is simply risk management. Failing to lock in future prices is tantamount to speculating that future gold prices will be higher than they are at present.”

She noted that financial markets expected the US Federal Reserve would increase interest rates in mid-December. The likelihood of rising US interest rates and some of the proposed policies of President-elect Donald Trump have boosted the value of the US dollar and have seen the Dow Jones Industrial Average hit record levels on Wall Street. Both of these factors are negative for gold.

“The recent decline in both the Australian dollar and US dollar gold prices reflects the latest market views on interest rates.

“But the local gold industry has the benefit of the exchange rate effect, where the Australian dollar has fallen considerably against the US dollar over the past few years.”

She said that the recent news that Minjar Gold, a subsidiary of Shanghai-listed Shandong Tyan Home property group, could buy Barrick Gold’s 50% share of the Super Pit, reportedly for $1.3-billion, would have no effect on overall overseas control of Australia’s gold industry. Super Pit is currently Australia’s third largest producer.

“If the proposed deal is successful, Barrick’s sale of its 50% share of the Super Pit would involve the ownership going from one overseas company to another overseas company,” Close said.

“Thus, overseas control of the local gold industry would remain at around its current level of 49%.” 

On the local scene, Close said that more of the smaller publicly-listed companies were becoming involved in gold mining and this had contributed positively to the current gold output.

Edited by Creamer Media Reporter

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