For more than a century the gold industry has helped keep Australia’s economy strong.
Times have changed for gold miners who face a challenging operating environment in which deposits are deeper, costs are relatively high and margins are tight.
A healthy flow of vital capital is necessary to build the future of Australia’s gold industry and secure tomorrow’s prosperity.
Stable Taxes and Royalties
The gold industry is an important contributor to government revenues in Australia.
Each year gold mining companies pay more than $400 million in royalties and taxes. This helps to build our roads, schools, hospitals and police stations and provide essential community services.
To ensure a strong future, we must remain viable and competitive in a global market.
Stable and competitive tax and royalty arrangements are vital to attract future investment and ensure operations remain viable.
Exploration is the lifeblood of Australia’s gold industry. Without new discoveries, gold production will fall over time.
It is not only the number of people employed by exploration companies that suffer without sustained exploration. It also affects a number of associated industries, from drilling companies and assay labs through to surveyors and consumable suppliers.
In Western Australia, gold exploration has been declining since a peak in 2012, primarily due to movements in the gold price and a weakening appetite from investors for greenfield speculative exploration.
Government incentives, such as WA’s Exploration Incentive Scheme and the Federal Government’s Exploration Development Incentive, have been introduced to attract new exploration campaigns as well as exploration in frontier areas.
Productivity, on both a volume and cost basis, has been declining significantly in the mining industry since 2000. Part of the reduction is due to conscious choices to chase production growth and headline revenue during the heady boom period of the mid-2000’s.
More recently, with the gold price coming off its highs, companies are faced with the reality that mines are getting deeper, grades lower (on average) and deposits are more difficult to find.
Gold production changed markedly in the early 1980’s with the introduction of carbon-in-leach (CIL) and carbon-in-pulp (CIP), with an associated increase in productivity. Since then, there have been some improvements for the recovery of refractory orebodies, however the industry is still generally utilising the technology developed 30+ years ago.
The gold price is volatile and not subject to normal supply and demand constraints seen with other commodities. The vast majority of the gold ever mined is still in circulation, due to its ease of recycling. It is not consumed like base metals or converted into other forms that cannot be re-used.
The price of gold is affected more markedly by shifts in politics, conflicts and world affairs. Instability caused by wars and conflicts tends to have a positive effect on the price of gold, whilst quiet stable periods tend to result in weakness in the gold price.
In Australia, there are also AUD:USD exchange rate movements that have an impact upon the price of gold received by gold producers, although historically these movements have resulted in less volatility in the Australian dollar gold price compared to the US dollar price.
Working at the margins
Unlike other minerals, a large amount of material must be mined and processed to recover just a small amount of gold. With some deposits having a grade as low as 1g/t Au, it can take the mining and processing of more than 30 tonnes of material just to produce 1 ounce (~31g) of gold.
By most measures, Australia now has the second highest operating costs in the world. This is often due to the remote nature of the deposits and the costs associated with power and fuel for the mines. However, Australian wages are also higher than our competitors, which has an impact on operating costs.