Global gold output to increase but at slower rate: Gold Fields

The fall in the price of gold this year after a promising start is cause for concern in the industry but it has not left Gold Fields Minerals Services of London completely pessimistic. “The plunge below US$370 (per oz.) on March 26 certainly shattered the new mood of confidence, but it does not alter several significant underlying trends,” writes the research firm in Gold 1990, the latest annual survey of the gold industry formerly published by associated company Consolidated Gold Fields.

Gold in London, which averaged US$382 in 1989, recently tumbled further, to below US$360.

While mine production in the West will likely rise modestly this year, the rate of growth is expected to be slower. “Moreover, the weak price of gold, rising costs, environmental controls and the tax on gold mine profits in Australia from 1991 will combine to curb further expansion,” write the researchers.

Communist nations will continue to be a major source of the metal. The Soviet Union will remain under pressure to sell its gold for its foreign exchange needs, but production from mines and alluvial deposits could decrease because of the economic situation there. China should boost its total output to 100 tonnes annually; that nation is expected to sell a good portion of its output to cover debt payments.

It is not anticipated the net selling of gold by central banks will be at the same level this year as in 1989. “Equally, the scale of disinvestment seen in Europe during 1988 and the first half of 1989 is unlikely to be repeated. Portfolio holdings of gold are already at extremely low levels,” writes Gold Fields.

The low price does not encourage recycling and Gold Fields expects the level of scrap gold this year to remain around 300 tonnes.

Fabrication demand is strong. “While the remarkable growth in jewelry consumption in the last three years cannot be expected to continue at the same high rate, in the face of weakening consumer spending, jewelry fabrication will remain the cornerstone of the gold market,” write the researchers.

Total mine production in the West climbed to a record 1,653 tonnes in 1989, up from 1,551 tonnes the previous year. All factors considered, Gold Fields estimates the gold market was in deficit in 1989.

Among major producers last year, the U.S. recorded the largest rise, up 29% to 259 tonnes. Australian output jumped by 25% to 197 tonnes, and Canadian production rose by 18% to 158 tonnes. Leading the way was South Africa at 608 tonnes, that output total down 2% from the previous year. (Net communist sales in 1989 were estimated to be 296 tonnes.)

Gold Fields points out that in 1989, the combined gold output of the U.S., Australia and Canada exceeded that of South Africa for the first time since 1911.

The researchers estimate an average cash production cost in the West in 1989 of US$250 per oz., unchanged from 1988. However, cash costs increased in the four major producing nations: South Africa, to $US276 from US$275; U.S., US$209 from US$206; Australia, US$247 from US$236; and Canada, US$249 from US$245. (Gold Fields has reassessed the 1988 costs published in last year’s survey.)

“In 1989, it is estimated about 5% of the industry’s production of gold was being produced at a cash cost in excess of the gold price; this compares with only 1% in 1988,” writes Gold Fields.

“However, due to the exclusion of certain costs such as depreciation and finance charges from the cash cost calculation, it should be noted there were many more producers operating at a loss despite their cash costs being below the gold price.”