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Mineweb’s Lawrence Williams published an article that looks at why gold miners are not yet recording lower output. He notes that while the expectation has long been that a lower gold price would force miners to close operations and shelve expansion plans, that has not been the case.
Mineweb’s Lawrence Williams published an article that looks at why gold miners are not yet recording lower output. He notes that while the expectation has long been that a lower gold price would force miners to close operations and shelve expansion plans, that has not been the case.
As quoted in the market news:
There are a number of reasons why the originally anticipated reductions in output have not yet taken place. The industry has become bloated during the years of rising gold prices, leaving scope for cost-cutting at all levels, thus enabling the companies to bring mines back into profit despite lower gold prices. One aspect of cost reduction has been to mine to higher grades, but maintaining tonnages through the mill and thus reducing unit costs. This leads to higher gold output. This is one of the big anomalies in falling prices – they can stimulate production increases.
Closing a mine down is not quite as simple nowadays and no longer just a case of cutting off the power supply and sending the workforce home. There are all kinds of social, logistical, and environmental costs, that often make shutting a mine down a more expensive option than keeping it open, which instead forces management to cut costs to the bare minimum and hope for a gold price turnaround. Extraneous factors can change a mine’s economics and recently we have seen both a huge drop in oil prices, which represent a substantial cost element to many operations, and a sharp rise in the value of the dollar against local currencies. This has made the fall in gold prices in local currencies not nearly as severe as in US dollar terms, granting miners some flexibility to managing their cost base.
True, we have seen new mining projects put on hold, or cancelled altogether, although no doubt they will be resurrected by some future generation. We have also seen exploration expenditures cut dramatically, meaning that new discoveries are not being made at anywhere near the same rate as in the past. But these both will affect potential production a few years hence, but are not making much impact on current output. But what has been happening is that mining projects already in the pipeline and too far down the development schedule, have come online and their production has more than countered any decline from mines that may have exhausted their reserves.
