All that glitters is not gold
Australia has the world's largest gold reserves and is the second largest producer after China. The Australian gold mining industry has total revenue of $15.2 billion and expanded rapidly as a result of the counter cyclical gold price escalation following the GFC.
Cash costs form the foundation of mining performance measurement. However, disclosures have tended to underestimate the true cost of mining and selling an ounce of gold. New standards recently introduced by the World Gold Council will provide greater transparency but also materially increase reported costs.
The 'goldilocks' era of ever increasing gold prices is likely over and the industry must achieve higher productivity growth to avoid contracting profitability and mine closures. Whilst miners are firmly focussed on cost savings, the challenge ahead is significant. Investors had expected gold miners to deliver returns leveraged to the gold price. These expectations have not been met and a paradigm shift is required to regain investor confidence and build sustainable production against a backdrop of lower gold prices.
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