Global gold production bounced back in 2021 as the pressures of Covid in 2020 slowly eased and the industry is hoping for a small rise this year.
Global prices have made a choppy start to the new year, still trading in the tight range of around $US1,750 to $US1,850 an ounce as traders confront a stronger dollar and the prospect of rising US interest rates – two traditional negatives for the metal (and silver as well).
Thursday saw more evidence of that. While gold settled up 80 cents at $US1,837 an ounce in the wake of the news US consumer prices rose by a massive 7.5% in January – a 40 year high – afterhours trading saw gold slide more than $US7 an ounce to be lower overall for the session as investors realised the certain rate rise from the Federal Reserve next week was not a positive for the metal (or silver for that matter).
The initial spin in the aftermath of the CPI release was that it underlined gold’s attractions as a hedge against rising inflation, but that positive view didn’t last and prices slid as equities sold off.
The rate rise next month from the Fed will return focus to gold’s fundamentals – solid demand but a weakish production/supply outlook for the coming year.
Covid in its various forms remains a concern as well, along with labour and material shortages caused by the omicron wave which have the potential to damage mine output.
The key US bond rate – the yield on the 10-year US Treasury breached the 2% level on Thursday which should worry investors because that seems to be a key level so far as the market is concerned.
Demand in major consumers like China and India will again be influenced by Covid, the health of the domestic economy and consumer confidence. Chinese production is still being impacted by safety problems at several mines last year.
Total supply (production and recycling) fell by 1% y-o-y in 2021, the second successive year of declines and the first consecutive fall in more than a decade.
Although mine production increased to 3,561 tonnes, the World Gold Council (WGC) said in its annual outlook report that the rise was largely due to fewer pandemic interruptions, not improved mine operation or higher grades.
2021 output was still just a smidge under 2019 (IE pre-pandemic) levels and it was still slightly below its 2018 level.
Hedging by gold miners is a small factor these days – the WGC said aggregate outstanding hedges from gold mining companies have now fallen for four of the past five years.
A sharp drop in recycling to 1,150 tonnes drove the annual fall in overall total supply, despite consumers in virtually all markets being able to sell-back their old gold jewellery more easily.
Market prices, though, were below the record levels of well over $US2,000 an ounce reached in August 2020 in the midst of the first Covid wave. Since then it has been a steady easing to the current tight trading range of $US100 an ounce or so.
Mine production – the key source of supply – ended 2021 down 1% in the December quarter to 915 tonnes.
The WGC said this was the lowest mine output in a December quarter since 2015.
That left 2021’s annual production up 2% at 3,561 tonnes, up 2% from Covid-hit 2020 but still lower than 2019 and 3% lower than 2018. (2018 remains the peak year for global gold production).
Production in the June half year of 2021 rose 5% but then stagnated in the second half thanks in part to problems in Australia at Newcrest’s Cadia mine, at the Boddington mine of Newmont (and well as at the same company’s Tanami mine on the Northern Territory). There were also production weaknesses at Newcrest’s Lihir mine in PNG and in China where mine safety issues saw production fall.
In fact second half output was no higher than for the final six months of 2020.
Regionally, Asia (China) and Oceania (Australia and PNG) saw lower full-year production compared to 2020, whilst modest growth was seen across all other regions.
The WGC said that “Operational issues dominated in Q4. Ongoing safety-related stoppages in the Shandong province saw Chinese mine production down 10% year on year (y-o-y). Lower grades and operational issues saw production from Burkina Faso 8% lower y-o-y and Australia down 7% y-o-y. A fire at Tasiast’s SAG Mill in June saw processing suspended, leading to a 58% y-o-y reduction in output from Mauritania.”
But it was not all bad news so far as production is concerned.
The WGC said several countries saw production growth during the quarter. Egypt reported a 56% increase after the Sukari mine recovered from a pit stability problem that occurred in the final quarter of 2020 and Kyrgyzstan is believed to have increased mine production from Kumtor due to the processing of higher grades – “although we are seeing less information on this mine’s performance following it’s seizure by the state.”
“Indonesia saw a 14% y-o-y increase in mine production as Grasberg continued to ramp up its underground block cave activities, and Russia saw 8% higher production in Q4 2021, predominantly from smaller and privately owned operations,” the WGC said.
On an annual aggregate basis, China saw the largest full year decline, down 37 tonnes followed by Australia (down 17 tonnes), the US (11 tonnes down from 2020) and Papua New Guinea (down 10 tonnes).
Indonesia saw full-year production increase by 21 tonnes as underground production was ramped up at Grasberg. Canadian production increased 19 tonnes on production expansions and recovery from fire-related disruptions.
Mexican output increased by 14 tonnes and South African production increased by 13 tonnes as the industry recovered from the pandemic in both of these countries.
Looking into the rest of this year, the WGC said the vagaries of production rather than COVID interruptions “will likely dominate production in 2022.”
Six new mine start-ups with annual production capacity of about 16 tonnes a year have recently begun production which will add to this year’s performance
“Although this will be supplemented with private and smaller mines, it is almost inconsequential compared to current mine output and annual changes will probably be dominated by operational issues – positive and negative – in 2022.
“But if mine production is going to be sustained at current levels, the industry is probably going to need some new, large mines soon.
The WGC said that mine production can achieve similar growth in 2022 to 2021’s performance.
“Margins remain healthy despite rising costs, incentivising continued production. Certain risks to this growth stem from continued COVID-related disruptions and, of course, operational issues.”
That could be said about the outlook for most metals this year.
