PERTH (miningweekly.com) – Australia’s gold production fell by some 5% during the three months to March, compared with the quarter ended December, to reach some 63.5 t, or around two-million ounces.

In its latest gold survey, mining consultancy Surbiton Associates noted that despite the quarter-on-quarter production decline, the March quarter’s production figures were still slightly higher than the previous corresponding period.

“It is the same old story for the March quarter. It’s the shortest quarter of the year and also covers the Christmas/New Year holiday period. In addition, there was the usual dislocation due to wet weather from the summer cyclones,” said Surbiton director Dr Sandra Close.

She noted that the sharp decline in the gold price during the second week of April occurred after the close of the March quarter.

Between April 10 and 16, the gold price declined by $195/oz from $1 575/oz to $1 380/oz. However, in Australian dollar terms the fall was smaller owing to the weakening of the Australian dollar exchange rate.

“Despite the sharp fall in early April, currently the local gold price is not as dramatically down as some would suggest,” Close said.

“At the current exchange rate the Australian dollar gold price is around the A$1 450/oz mark, making the decline since early April now only about A$60/oz or some 4%.”

As most Australian gold producers incurred their costs in Australian dollars, the exchange rate was an important factor.

“We hear so much about the high Australian dollar but in fact the Aussie has lost around 10c against the US dollar since early April. This has had a considerable impact.”

Close dismissed the idea that the cost of gold production in Australia was rising at an alarming rate and would render many operations uneconomic.

“The cash cost of producing an ounce of gold is a notoriously bad guide to production costs and can be quite misleading. It takes no account of changes in gold head grades (the grade of gold ore being fed into treatment plants), which can have a huge influence on the cash cost of gold produced.”

Close pointed out that for about a decade, gold head grades have been declining as the gold price has risen and made it economic to treat lower-grade ore. She said that given the lower prices now, this trend could well be reversed as producers responded to changing circumstances.

Close said that, generally speaking, anyone who had been following the gold industry for less than a decade has only ever seen rising gold prices, and added that it must have come as a shock for some to discover that the gold market was like any other market and that prices can fall as well as rise.

“Since the recent downturn, I have been asked several times if the Australian gold mining industry would survive. Given that the Australian gold mining industry has been around for more than 160 years and has faced far greater challenges than what is so far a relatively small decline in price, of course the industry will survive.”

Although there have been recent reports of gold operations closing or being put up for sale, Close said that this was not unusual and had been a feature of the Australian gold industry for most of the modern gold boom.

“At any particular time, there will be operations that are doing extremely well, those that are OK and some that are marginal and struggling. Obviously the most vulnerable and those least prepared will be most affected by events such as a fall in price.”

She added that the mining business is a matter of optimisation, and noted that it was always prudent to have practical contingency plans to deal with both technical and economic uncertainties.

“One of the factors that could push gold prices lower would be if the US Federal Reserve actually began to phase out quantitative easing, rather than just talking about it. On the other hand, the longer-term outlook for stability in South Africa, which is still a significant gold producer, is a cause for concern.”