Gold production remains high even with lower prices

November 20, 2013

Despite a 24-percent plunge in prices for gold, production from gold mines around the world is expected to hit record highs this year, Reuters reported.

The increased production is unlikely to change until 2015 and will disappoint the bulls who have been hoping for production cuts to drive the prices back up.

That is not to say the lower prices have not taken a toll on some mining companies. In recent months a number of projects have been suspended and some companies, including Kinross gold, have been forced to make cuts to staff (ME, Nov. 15). 

But as prices fall, others are actually increasing output to maintain revenue and profit levels, Reuters reported. In some cases, they are targeting higher grade ore to keep marginal mines operating and generating cash, at the expense of future production.

Furthermore, several large projects put into motion during gold's 12-year rally, which took it as high as $1,920 an ounce in 2011, are coming to fruition.

Barrick Gold, Newmont Mining and AngloGold Ashanti all reported higher production in the most recent quarter.

With the lower price per ounce the business model for some mines has changed leading to more companies trying to tap higher graders while sacrificing some lower grade ore.

African Barrick Gold, for example, re-engineered its lowest grade and highest cost mine, Buzwagi, to tap higher grades and move less material, hoping to ensure the operation generates cash, Reuters reported.

During the boom years, the cost of gold mining soared. But this year the average cost of producing an ounce of gold is already showing signs of retreating, according to metals consultancy Thomson Reuters GFMS.

All-in costs are expected to ease back to around $1,200 an ounce in 2013 from $1,228 last year, after total cash costs fell to $769 an ounce in the second quarter from $796 in the first three months of the year.

That is still perilously close to the spot gold price of $1,270, and there is only so far miners can cut back to keep tough operations afloat. But, analysts say, the long delays and time scales in mining mean it will take time for the drop in prices to translate into lower mine output.

For now, miners are cranking up volumes to boost revenue and spread out their hefty fixed costs over a bigger base - just as large new projects such as Randgold's Kibali Mine in the Democratic Republic of Congo and Barrick Gold's Pueblo Viejo in the Dominican Republic come onstream.

Metals consultancy Metals Focus said it expects gold mine output to break through 3,000 tonnes a year in 2014 for the first time. That compares with an estimated 2013 output of 2,920 tonnes and 2012's 2,861 tonnes, according to GFMS.

Gold production could start moderating in 2015.

"That's the point when you will start to see some cost-cutting closures," Metals Focus analyst Oliver Heathman said. "Depending on the mines, they can sustain a period of high grading. The bulk of mines are still profitable on a cash cost basis at $1,000 an ounce, but not on a prolonged basis."



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