Gold sector's cost reporting misleading and inconsistent - Gold Fields CEO
JOHANNESBURG - The world’s gold sector has fostered potentially misleading and inconsistent reporting of its actual cost structure, with suggestions that actual costs may be higher than those publicly declared, a senior executive has said.
Gold Fieds CEO Nick Holland, whose company is one of the world's leading producers of the precious metal, told the ongoing Africa Downunder conference in Perth, Australia that the potential under-reporting was occurring in the context of a generally under-capitalised gold industry.
"We face a situation where gold miners have not been spending enough capital to sustain production, let alone grow production,” he said.
“Any growth capital people speak about is in fact largely sustaining capital. On the face of it, cost performance of the gold industry has been good – but this has been at the expense of sustainability of production."
The cost to sustain production was increasing, with the the industry mining more tonnes at lower grade to maintain ounces, said Holland.
Replacement was therefore becoming more expensive as miners had to go deeper to extract lower grade gold ore from more complex geological structures.
"More complex geology simply means higher processing costs, lower recoveries and harder rock," he said.
FILE PHOTO: Gold bullion is displayed at Hatton Garden Metals precious metal dealers in London
In 2013, the World Gold Council defined the true cost metrics under the 'all in sustaining cost' (AISC) protocols and also defined non--sustaining costs.
"Between 2012-2016, AISC cost trends per US dollar/ounce decreased at a rate of just under seven percent per year, but increased from 2017 onwards within an environment where there was a notable decrease in sustaining capital from US$313/ounce in 2012 to US$166 in 2016 – a level maintained since," Holland said.
“Gold exploration budgets were also slashed with the bulk of such exploration over the past five years being brownfields projects and near-mine development.
He noted that growth in global mine supply had also slowed significantly, increasing only 1.8 percent in 2018 compared with 6.2 perdent, in 2013, with some 30 percent of global gold reserves currently associated with assets where a construction decision was yet to be made.
"We therefore have an emerging situation where the industry can potentially sustain production at current levels for the next few years before entering a period of secular decline in the longer term," Holland said.