Aussie Gold Miners Are a Tech Punt
Australia is mere months away from becoming the world’s largest gold producer.
A title by the way, that China has held onto for years.
It’s estimated in 2021 we’ll pour 383 tonnes of gold, more than any other country in the world. Knocking China off the top spot it’s held since 2007.
Worse still for the Middle Kingdom, is that one estimate says Chinese annual gold mine production will be stagnant over the next decade. Suggesting that Russia will overtake them. Bumping China all the way down to number three.
Australia didn’t get to number one by accident though. Currency parity with the US dollar back in 2010–11 meant some gold miners were at risk of losing money.
This brief moment in time when one Aussie dollar was worth more than one greenback, forced our gold miners to become better producers.
Not only did Aussie gold miners cut the bloat from the budget, they streamlined their processes to produce more gold for less.
Yet years of underinvestment in both exploration and mine expansion mean that many miners around the world are at risk of having little left to dig up.
When the gold price falls, exploration is the first thing to go from the budget.
Yet it can take a decade or more to turn a gold find into a gold mine. And even then, the odds are against you.
For every 1,000 deposits ‘found’ one will become an operational mine.
That’s right. Every mine running today is the one out of a thousand that made it through.
Rising prices mean we’re prepared to pay top dollar for precious metals.
But globally gold miners haven’t built their resources when the price was low.
By underinvesting in exploration, miners have hurt future production…and they may miss out on a once a century opportunity…
Once in a century opportunity
Australia — more than other country in the world — is going to benefit from a rising gold price before any others.
A bold claim I know, but hear me out.
Mining isn’t like any other business. The assets on the balance sheet are a depleting one.
Every ounce of gold out of the ground, is an ounce out of the ground.
Miners need to keep up their resource base by constantly finding more gold. When the price is booming, they tend to spend up big on exploration.
However, when the price tanks, exploration is the first thing to be cut.
Instead of spending money on exploration, there’s been mergers to grow their bases.
Over 2018–19, big gold miners morphed into ‘super gold miners’ with the Barrick Randgold and Newmont Goldcorp mergers.
Not only did this increase value for their shareholders, they were able to grow their resource base without increasing their spending on exploration.
But the days of the big mergers may behind us now. And they still need to sure up future gold supplies.
This is exactly how Aussie gold miners have gotten a head start.
The high Aussie dollar gold price has not only cashed up our miners, but it’s encouraged them to go hunting for more. Even Bloomberg noted recently that our miners are one of the few in the world to be spending money on exploration, writing:
‘Spending on gold exploration in Australia rose to a new record in the final quarter of 2019, while the annual total of more than A$1 billion (US$656 million) was about 20% higher than the previous year, according to government estimates. It’s much needed as there have been no major global gold discoveries in the past three years and only 25 in the last decade, S&P Global Market Intelligence said in a report this month.’
As Bloomberg points out, there hasn’t been a major global gold discovery in the past three years.
In fact in Australia, the last ‘tier one’ at discovery (that is a multimillion ounce gold deposit) was Tropicana, a joint venture between AngloGold Ashanti Ltd [ASX:AGG] and IGO Ltd [ASX:IGO].
Some deposits become a tier one after production has started (Gold Road Resources Ltd [ASX:GOR] Gruyere could potentially be one of those).
But finding the ‘big company making deposits’ from the start is becoming increasingly difficult.
Putting Aussie gold miners and juniors in an enviable position right now.
A large number of them are cashed up thanks to the large buffer between the costs of mining gold and what they are selling it for.
But then there is the absolute wild card when it comes to gold mining…
Gold rich — but it wasn’t always this way
Australia literally peppered with gold deposits. We hit the geological jackpot.
Pretty much every historical gold rush in Australia began with a bloke (or a horse) stumbling across a shiny rock.
It didn’t stay this way.
While Victoria kick-started the gold rush in 1850s, the ‘easy’ gold was all dug up by the 1890s and prospectors moved on. They headed out to Western Australia, where a gold rush started there around the same time.
Yet by the dawn of the 20th century the easy gold had been found here too. Some areas were developing mines. But the rampant exploration subsided.
And it stayed this way through both the world wars…
A fixed gold price and all the easy gold being dug up meant that perhaps we weren’t as gold rich as we thought.
But all that changed towards the end of the 1970s.
Another gold rush began in Australia.
And it all came down to two things: a rising gold price and a leap in technology.
It’s old hat today at mine sites, but back in the 1980s a new process was a game changer for Australian gold deposits.
A revolutionary method called carbon-in-pulp (CIP) processing changed how miners extracted the gold ore from a cyanide mix.
In other words, suddenly the hard to get gold was a lot easier to get out of the dirt.
Low-grade gold deposits that were uneconomical in the 1960s were viable 20 years later.
These deposits by the way, were located nearby the original easy gold deposits of the 1890s. New exploration wasn’t really necessary, because this change in technology enabled them to do more for less cost.
Even though it’s been in use for almost 50 years, CIP drastically altered Australia’s gold mining fortunes.
This technology not only transformed what could or couldn’t be mined, it set Australia up to become the dominant supplier of gold it is today.
Higher gold prices and technology advancement could see Australian gold mining prosper over the next decade.
While higher gold prices will encourage more exploration for gold locally, I have no doubt that whatever the big leap in technology is, it will really shake up Australia’s gold industry.
Until next time,
PS: Over the next couple of days I’m going to share some work from one of our sister publications. While I can be all doomy and gloomy, the one thing I have never lost sight of is just how important technology is for progress. Gold mining in Australia is an example of that.
Ryan Dinse, editor of Money Morning and Exponential Stock Investor, understands the impact of technology on a business, and how even certain advancements can completely alter human behaviour. Please read on for more.