PwC gold study charts new ground

A study on the direct economic impact of gold — commissioned by the World Gold Council — gathers, for the first time, all the evidence of the precious metal’s economic and fiscal contribution, author PricewaterhouseCoopers says.

The 54-page analysis by the international services firm assesses available data from the world’s 15 major gold-producing countries and the 13 major gold-using countries, which accounted for 76% of global gold-mine production and 81% of gold demand in 2012. Its focus is on formal, large-scale mining.

The 15 producing countries on which PwC bases its study (and their share of global production in 2012) are: China (14.4%); Australia (8.7%); the U.S. (8.1%); Russia (8%); Peru (6.5%); South Africa (6.2%); Canada (3.8%); Ghana (3.3%); Mexico (3.3%); Indonesia (3.1%); Uzbekistan (2.6%); Brazil (2.4%); Papua New Guinea (2%); Argentina (1.9%); and Tanzania (1.7%).

The study’s key metric is gross value added, or GVA, which measures the contribution to gross domestic product (GDP), employment and taxes paid. PwC says it uses GVA as its metric “because it measures the value of an activity in a way that lends itself to direct comparison with GDP.”

To calculate GVA, the authors took two approaches: the income approach (which involves calculating the sum of operating profits, depreciation and amortization, and employee costs); and the production approach (the value of gold sales minus the cost of intermediate consumption, or the cost of inputs and raw materials directly attributable to that of consumption.)

The study analyzes supply from mine production (which makes up two-thirds of the global gold supply annually) and recycling (which makes up the rest), and concludes that the annual global supply of gold rose from 3,017 tonnes in 2007 to 4,477 tonnes in 2012, which is a 48% increase.

The 15 largest gold-producing countries generated US$78.4 billion of GVA in 2012. The six largest producers were China, Australia, U.S., Russia, Peru and South Africa, and direct GVA from mining stood at US$12.6 billion in China, US$9.3 billion in the U.S., US$8.6 billion in Russia, US$8.6 billion in Australia and US$8 billion in Peru.

The two fastest-growing gold producers are Mexico, where gold production jumped 118% between 2007 and 2012, and China, where it rose 47%.

The study finds that on average in 2012, the amount of economic value added per oz. gold was US$1,139. The numbers range from China’s US$946 per oz. gold to Peru’s US$1,352 per oz. gold.

The study concludes that formal gold mining in the top-15 producers employed 527,900 people last year, and that it makes up a significant amount of national exports for some countries, such as Tanzania, where gold constituted 36% of all exports, and Ghana and Papua New Guinea, where it made up 26% of all exports.

Gold recycling, which climbed 60% from 1,005 tonnes in 2007 to 1,616 tonnes in 2012, generated GVA of between US$23.4 billion and US$27.6 billion. (GVA per tonne of recycled gold is US$16 million, compared with US$36 million for mined gold.) Last year the U.S. and Italy were the top-two sources of recycled gold, followed by China and India.

Of the US$17.7 billion of capex reported by companies in 2012, 34% was used to maintain operations and 66% was spent on expanding operations or developing new ones. Canada, U.S. and Australia reported the largest gold-mining capex of US$2.6 billion, US$2.5 billion and US$2.3 billion.

Combined mining-royalty liabilities in all 15 countries studied added up to US$4.1 billion. The study found that China and Russia accounted for the greatest liability for mining royalties at US$1.4 billion and US$797 million.

In terms of demand, the study finds that it advanced 42% between 2007 and 2012, peaking at 4,582 tonnes in 2011.

Breaking the demand into categories, the study reports that jewellery accounts for 43%; investment (i.e., bars, coins and gold-backed exchange-traded funds), 35%; central banks, 12%; and technology and manufacturing (i.e., electronics, dentistry and decorative), 10%.