Production up amid royalty fears
Australia's gold output is at an 11-year high but the threat of an increase to the WA royalty rate is casting a shadow, new analysis has warned.
Melbourne-based mining consultancy Surbiton Associates released its latest survey of the Australian gold mining industry last week, outlining how the nation's gold production rose to 284 tonnes for the full 2014 year, up 11 tonnes or 4 per cent on the previous year, representing the highest annual figure since 2003.
Surbiton director Sandra Close said, superficially, the figures gave the impression of a healthy and vibrant industry.
"But you need to dig a little deeper to get the real picture, it's not all good news," Dr Close said.
Australian dollar gold prices peaked in August 2011 at just over A$1800/oz compared to about A$1550/oz in today's market.
Throughout this period the Australian dollar exchange rate declined by 25 per cent, while the US dollar gold price fell 37 per cent.
"The lower prices have forced Australian gold miners to increase the grade of ore that they are mining and treating, and they are also pushing their treatment plants harder in order to remain profitable," Dr Close said.
"However, there is a downside - higher grades and greater throughput certainly lift production but lower grade material becomes uneconomic, so mine lives are shortened."
Dr Close said that for the Australian gold industry, the royalty rate in WA was significant because the State produced almost three quarters of Australia's gold.
The WA Government announced an inquiry into royalty rates in 2012 and the final report is due to be released soon.
"Many factors have changed since the inquiry was announced and the possibility of higher gold royalties has had a negative effect," Dr Close said.
"The gold industry is coping with a lower price regime and lower investor confidence; the uncertainty regarding royalties has been a further burden."
Currently, the gold royalty in WA is levied at 2.5 per cent of the value of the gold produced, which is just under A$40/oz at today's price.
