Commodities, Features, Gold

Australia’s growing treasure chest

treasure chest

Words by Anthony Fensom.

Australia’s gold industry is tipped for continued growth, propelled by new gold mines and existing expansions. Soon enough, output is expected to top 374 tonnes.

In 2021, Australia claimed the mantle of the world’s largest gold producer, with rising investment and exploration activity boosting the outlook. Will the strong momentum continue in 2022?

Having been the world’s second-largest producer for around a decade, Australia overtook China in the first half of 2021, with production of 157 tonnes compared to China’s 153 tonnes amid reduced output in the Asian giant, according to analysts Surbiton Associates.

This followed strong production levels, with 321 tonnes produced in Australia in the 2021 financial year (FY21), according to the Office of the Chief Economist.

The government forecaster sees output rising to 362 tonnes in the 2022 financial year, with a further climb to 374 tonnes predicted in the 2023 financial year (FY23) following the opening of new mines and existing-mine expansions.

Australia’s gold export earnings are expected to reach $28.4 billion in FY23, up marginally from the previous fiscal year’s $28.3 billion, on the back of higher export volumes. Australia’s biggest export markets in FY21 comprised the United Kingdom, the United States, Singapore, China and Switzerland.

Boosting the production outlook, gold exploration expenditure increased by 21 per cent year-on-year to reach nearly $430 million in the September quarter 2021, amid high US and Australian dollar gold prices.

Western Australia remained Australia’s “golden state”, accounting for 72 per cent of total gold exploration expenditure.

Among the WA projects, Red 5’s King of the Hills gold project is expected to start production in the June quarter 2022, while Ramelius Resources’ Tampia mine in WA is seen adding further output.

In addition, Newcrest is extending the mine life of its Telfer mine, with other additions including Resources and Energy Group’s Granny Venn mine and Calidus Resources’ Warrawoona mine.

Other emerging WA gold miners include Sayona Mining, which is eyeing Hemi-like targets near De Grey Mining’s 6.8-million-ounce discovery. Pending approvals, drilling is planned for 2022 at Sayona’s Mount Dove and Deep Well projects.

“The Hemi discovery has highlighted the Pilbara’s potential for major new gold finds. We’re excited by the opportunity to advance our projects, adding to the value of our lithium assets in Canada and Australia,” Sayona managing director Brett Lynch says.

Another WA-focused miner, Platina Resources, is planning an air core drilling program at its Challa gold project following encouraging gold assay results, with new drilling also eyed for its Xanadu gold project in the Ashburton Basin.

“Western Australia is Australia’s premier gold state and we’re confident we are in the right place at the right time,” Platina managing director Corey Nolan says.

On the east coast, Queensland-focused Superior Resources sees potential for significant resource growth at its Steam Engine gold project, located around 210 kilometres west of Townsville.

The company has reported “spectacular” drilling results, including up to 115.2 grams per tonne of gold, with recent drilling adding to its confidence in the resource.

Superior plans to develop a low capex mining operation at Steam Engine. An April 2021 scoping study showed its ability to deliver post-tax, life-of-mine cash flow of around $24 million per annum, based on a $2200 per ounce gold price.

“Steam Engine continues to pick up speed and we look forward to announcing a new mineral resource estimate and maiden ore reserve,” Superior managing director Peter Hwang says.

“With gold prices remaining high in Australian dollar terms, we see a bright outlook for Steam Engine in delivering near-term cash flow.”

Drilling at Superior Resources’ Greenvale project in QLD.

Further afield, Melbourne-based Nova Minerals’ vision of becoming a major North American gold producer has become clearer. The company has increased the total gold resource estimate at its Estelle project in Alaska to 9.6 million ounces from 3.3 million ounces over the past 12 months.

“Our confidence that it could be the world’s next major gold trend has been boosted by some exceptional drilling results [in 2021], highlighted by one of the largest gold intercepts of the last decade,” Nova chief executive officer Christopher Gerteisen says.

Bright outlook

Although the gold price finished 2021 around 4 per cent lower, at $US1806 ($2525) per ounce, analysts see a range of factors affecting the precious metal’s outlook.

“From the end of March through to end of December, gold trended higher, supported by rising inflation rates and a renewed decline in real bond yields,” the Perth Mint’s Jordan Eliseo says.

Competing factors include the headwinds of rising inflation and higher interest rates, offset by the impact of the Omicron variant of the COVID-19 pandemic and a potential US stock market correction, which could see demand for gold rise as a safe haven asset.

The Australian government forecaster sees prices easing to $US1700 by 2023, while J.P. Morgan analysts project tightening US monetary policy could push gold prices to as low as $US1520 per ounce in 2022.

In contrast, ANZ Research expects the gold price to average $US1725 per ounce in 2022. It points to stronger physical demand, “driven by a rebound in consumer demand in China and India”, supported by “strong buying” by central banks.

Other analysts are even more bullish. In January, Canaccord Genuity analysts lifted their 2022 gold price forecast to $US1830 an ounce and its long-term price to $US1927, describing Australian listed gold miners as “undervalued”.

The World Gold Council sees the headwinds of higher interest rates and a stronger US dollar being potentially offset by high inflation, market volatility and robust demand from other sectors, such as central banks and jewellery.

“Against this backdrop, gold’s performance during 2022 will ultimately be determined by which factors tip the scale. Yet, gold’s relevance as a risk hedge will be particularly relevant for investors this year,” the council said in its ‘Gold Outlook 2022’.

With the gold price in Australian dollar terms likely to remain historically high, Australian miners remain bullish.

“Gold continues to be valued as a hedge against inflation and this will come into its own in 2022,” Superior’s Hwang says.

“For Australian miners, the conditions are excellent for more new discoveries that will propel production and investment and further cement our nation’s position as a leading global producer.”

This feature appeared in the February issue of Australian Resources & Investment.

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