As this week’s $3.7 billion takeover of Canadian gold miner Pretium by Newcrest shows, there is still a lot of interest in gold (supported by a couple of smaller takeovers in Australia and small, new mine decisions as well).
Adding to gold’s continuing allure (it is the most explored-for mineral) are the continuing worries about US inflation which this week rekindled investor interest in the metal with the Comex price settling at five-month highs on Thursday at $US1,863.90 an ounce.
If this interest can be sustained that will maintain exploration and mine development in major regions, and M&A activity like Newcrest’s move which all about keeping production around current levels of more than 2 million ounces a year for the next decade.
The World Gold Council (WGC) says global gold production “is still on track to recover ground lost in 2020” as the Covid pandemic forced mines to shut down for varying periods of time, sent work forces home or to hospital or caused problems further down the production and sales process.
“Q3 mine production increased by 4% y-o-y as there were fewer COVID-19 production interruptions compared to last year. But the underlying production growth was demonstrated by the 3% increase compared to 2019 pre-pandemic levels, according to the WGC.
“A lower gold price during the quarter and evidence of depleted near-market supply of old jewellery saw recycled gold supply 22% lower y-o-y. Recycled supply has consistently fallen y-o-y in each quarter of 2021 so far.
Costs continued to rise – the latest complete costs data is for the second quarter and the WGC says it showed the All in Sustaining Cost reach its highest level since 2014 (see below).
Looking at production next year the WGC says production ramp-ups at the underground block cave at Grasberg in Indonesia, new projects/expansions, and some higher grades in North America look set to more than offset ore reserve depletion and lower grades at other mines.
But there are notable production cuts already in the market place – 500,000 ounces from Number 1 global miner, Newmont because of Covid problems at its Tanami mine in the Northern Territory and lower output from its Boddington mine in WA.
Global Number 2, Barrick reported gold sales fell in the September quarter to 1.07 million ounces from 1.25 million ounces a year earlier (Newmont’s was 90,000 ounces lower than in the September, 2020 quarter)
But the Fosterville mine of Kirkland Gold in Victoria managed to meet 2021 guidance in the first nine months of the year.
The mine produced 134,772 ounces of gold for the September quarter. That meant Fosterville had produced 401,444 ounces of gold up until the end of September, which already met Kirkland Gold’s 2021 annual production guidance of between 400,000 and 425,000 ounces for the mine. It produced 640,000 ounces in 2020.
The World Gold Council said in its report that third quarter mine production is estimated at a record 959 tonnes. “But due to downward revisions to the last two quarters, year to date production of 2,679 tonnes was slightly below the record set in 2018, when mine production reached 2,704 tonnes for the first nine months of the year.”
Third quarter mine production rose 9% quarter on quarter from June due to seasonal increase in output from high latitude alluvial operations and some back-loaded production profiles at some conventional operations in North America.
“Higher output from the vast copper-gold operations of Grasberg in Indonesia (Freeport) and Oyu Tolgoi in Mongolia (Rio Tinto is the major shareholder) contributed to this growth, continuing the theme from previous quarters of this year.”
The WGC said the most commonly mentioned positive factor was “Recovery from COVID-related disruptions…although this effect waned in the most recent quarter because the worst disruption occurred in the first half of 2020.”
Peru was an exception: it was badly hit in 2020 from Covid (copper output fell as well) and the improvement in conditions saw third quarter 2021 production increase 25% over the year.
South Africa also saw a recovery with an 18% annual increase in in the third quarter due to the long lead time in restoring production from deep underground operations that had been allowed to run down over the previous decade or so.
Canadian production increased jumped at an annual rate of 23% due to the ramp-up of production from new projects, increased output at Detour Lake (Kirkland Lake), and the return of Musselwhite (Newmont) to full production following a fire in in the opening quarter of 2019. The return was suspended for a while earlier this year because of Covid Delta infections.
The WGC said technical and safety issues were responsible for the most significant declines in output seen in the third quarter. Production fell 34% year on year in Mauritania after a mill fire at the Tasiast mine (Kinross Gold) in June led to a suspension of milling operations. It is expected to return to production in the current quarter.
In Turkey, lower grades at Kisladag (Eldorado Gold) and Oksut (Centerra Gold) has seen Turkish production drop an annual 18% by the third quarter.
The suspension of the Obuasi (AngloGold Ashanti) mine in Ghana following a fatal accident contributed to a 5% fall in Ghanian mine production in the latest quarter.
In China more safety checks in mines in the Shandong Province, together with country-wide environmental pressure saw production down 6% year on year in the third quarter, according to the WGC.
Chinese state media reported in late October that the country produced 236.75 tonnes of gold in the 9 months to the end of September, a drop of 26.18 tonnes from the same period last year. That’s a rather big fall of 10.3% and was unexplained.
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Mining costs continued to rise in the second quarter (the latest that data is available, according to the WGC).
The costs of mining gold continued to increase in Q2’21, the latest available data. The average All In Sustaining Cost reached $US1,067/oz, the highest level seen since 2014 and up 10% over the year.
The WGC says total cash costs increased by 9% to $US776/oz. “The main drivers of this cost pressure were producer currency strength; higher sustaining capital expenditure; lower grades and recovery rates; and input cost inflation.”
“Some ongoing costs to mitigate the risks of COVID-19 also continue to be borne by mining companies,” the report added.
Looking out to 2022, S&P Global forecast this week that with gold and most base metals prices forecast to soften by slightly 2022 (1% to 5%), all-in sustaining cost, or AISC, margins are set to remain at historically high levels throughout the metals markets.
(That’s the margins between the selling price and costs which S&P global forecasts will not shrink next year).
“Gold producers have benefited the most since the emergence of the pandemic, with AISC margins of about 72% for both 2020 and 2021.
“Margins are forecast to rise above 85% in 2022, hitting a historical high as gold producers benefit from a modest increase in head grades and a sustained high price,” S&P Global said in a report on prospects for 2022.
