(Kitco News) - Despite record-high gold prices, Australian gold miners experienced lower production between July and September, according to Melbourne-based consultants Surbiton Associates.
In their latest quarterly report, the analysts noted that Australia produced 73 tonnes of gold, worth A$8.6 billion at the average price for the quarter. This marked a decline of two tonnes compared to the second quarter.
The analysts highlighted that, from early September to the end of October, gold prices rallied more than 15% in Australian dollar terms.
“By late October, the US dollar price was being driven by declining interest rates in the US and other countries,” said Dr. Sandra Close, a director at Surbiton Associates. “Other factors included increased interest in gold from private investors and superannuation funds, as well as higher flows into exchange-traded funds. Additionally, the price rise has been influenced by countries such as Russia, Turkey, Poland, and India reducing their holdings of US dollars and buying gold.”
Surbiton Associates noted that companies began processing lower-grade ore in the higher-price environment, which may have impacted production. The analysts observed that at Newmont’s Boddington operation in Western Australia, the country’s largest gold mine, 6.3 million tonnes of ore were mined during the quarter, while 8.4 million tonnes were processed. The difference of 2.1 million tonnes was presumably sourced from stockpiles. The ore grade decreased by around 5%, reducing output by approximately 10,000 ounces of gold.
“At the risk of sounding repetitive, it is no surprise that gold production may fall when prices are high,” Close said. “Treating some lower-grade stockpiled ore results in fewer ounces being produced, with a consequent rise in the cost per ounce of production. However, this is a sensible and rational means of optimizing mine life and profitability.”
While gold producers benefited from a robust price rally last quarter, recent market volatility is prompting changes in the industry. Close noted that, in a volatile market, companies are increasingly turning to hedging strategies.
“The wild swings in gold prices over the last few months show that a degree of hedging provides some insurance against sudden price changes, especially for locally listed producers,” Close said. “This can be achieved through the prudent purchase of gold put options, which give the purchaser the right, but not the obligation, to sell their gold at an agreed price.”
With this hedging strategy, if the market price exceeds the agreed price, the producer sells the gold on the market and allows the put option to expire. However, if the market price falls below the agreed price, the producer exercises the put option and sells at the higher agreed price.
