A leading mining executive has questioned the reporting accuracy of the global gold sector.
Speaking at the annual Africa Down Under conference in Perth, Gold Field Ltd’s CEO Nick Holland said that potential under-reporting was occurring in the context of a gold industry that generally was under-capitalised.
“We face a situation where gold miners have not been spending enough capital to sustain production, let alone grow production,” Mr Holland told delegates.
“Any growth capital people speak about is in fact largely sustaining capital,” he said. “On the face of it, cost performance of the gold industry has been good – but this has been at the expense of sustainability of production.
“The cost to sustain production is increasing. The industry is mining more tonnes at lower grade to maintain ounces. Therefore, replacement is becoming more expensive as miners are having to go deeper to extract lower grade gold ore from more complex geological structures. More complex geology simply means higher processing costs, lower recoveries and harder rock.”
Mr Holland also highlighted the problems may be associated with the current spate of “big bang mergers”, which could result in assets being recycled and rebadged.
“Consolidation does not address the undercapitalisation of the world’s gold industry,” Mr Holland said.
“In 2013, the World Gold Council (WGC) defined the true cost metrics under the All In Sustaining Cost (AISC) protocols and also defined non–sustaining costs. Between 2012-2016, AISC cost trends per US$/oz decreased at a rate of just under 7% per year, but increased from 2017 onwards within an environment where there was a notable decrease in sustaining capital from US$313/oz in 2012 to US$166 in 2016 – a level maintained since.
“Gold exploration budgets were also slashed with the bulk of such exploration over the past five years being brownfields projects and near-mine development.
“At the same time, growth in global mine supply slowed significantly, increasing only 1.8% in 2018 compared to 6.2% in 2013. Some 30% of global gold reserves are currently associated with assets where a construction decision is yet to be made.
“We therefore have an emerging situation where the industry can potentially sustain production at current levels for the next few years before entering a period of secular decline in the longer term.”