Consultancy Metals Focus forecasts gold output to fall as unprofitable mines are shut.
LONDON – Taking All-in Sustaining Costs (AISC) figures, precious metals consultancy Metals Focus reckons that just short of a quarter of global new mined gold output is running at a loss at an $1100/ounce gold price, and falls below that level will add to this quite sharply.
The consultancy’s global cost curve covers gold mines providing around half the global gold output of 1,650 tonnes. Metals Focus estimates that as much as half of annual new mined production in their survey, i.e. 400 tonnes, will be uneconomic at current prices.
Presumably extrapolating this figure across total global gold output would thereby suggest that as much as 800 tonnes of production could currently be running at a loss.
But the consultancy notes, this doesn’t mean that any of the production will fall away through closures and cutbacks, not until the gold price downturn is more prolonged or more severe. It notes that there may be substantial costs involved in closing an operating mine down, which may mean it is less costly to keep the mine producing at some level – perhaps high grading where this is an option (which may actually increase output).
As the consultancy points out in its latest Precious Metals Weekly newsletter, firstly, closing a mine in itself is often a very costly undertaking. The workforce may be entitled to some redundancy or retraining payments. Decommissioning of the process plant and mining equipment, as well as reclamation of the land and watercourses, and other environmental-related site rehabilitation also has to be accounted for.
Because of this, rather than closing an operation, mining companies will often be prepared to operate at a loss in the short term in the hope that the gold price will make something of a recovery although sentiment seems to be so anti-gold at the moment it is hard to see this happening in the short term.
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