Standard Chartered: Gold Production Nearing Cycle Peak
(Kitco News) - Global gold-mine supply is closing in on its cycle peak, say analysts with Standard Chartered.
Gold output growth in 2016 slowed to 0.4%, its weakest rate since it turned positive in 2009, the bank said. Although Standard forecast mine production will grow further in 2017 to a record high of 3,229 tonnes, analysts also see the growth rate slowing to 0.2%.
“New gold mines that are due to come online are on average smaller than the largest projects to have come online in the past few years,” Standard said. “Further, although some mine closures and production cuts occurred when prices fell sharply in 2012-13, the primary effect of a lower-price environment was reduced ‘low-grade’ mining; i.e., sufficiently high prices to allow mine life extension or mining low grades that would otherwise be uneconomical.”
The average grade of gold grams mined per tonne fell from over 2.5 in 2000 to around 1.5 in 2012, Standard said.
Meanwhile, companies have cut costs since 2013, although this has also meant less investment that in turn will mean a lag before new projects come on line, Standard said. Pressure to cut costs emerged when the price of gold tumbled sharply a few years back.
“Capital expenditure and exploration budgets have been scaled back, along with administration overhead costs, resulting in lower total cash costs as well as all-in sustaining cost of production,” Standard said.
In fact, analysts said, a stronger dollar coupled with lower energy prices pushed cash costs to around $650 an ounce and all-in sustaining costs below $900 in 2016.
“Positive cash margins and higher prices may prompt some producers to reinvest, but there is a decade lag before new projects come to fruition,” Standard added. “Average grades have been mostly flat but with scope for ‘high-grading.’”