Gold prices to remain elevated after reaching a new high in 2023

Gold prices are forecast to average about US$1,900 an ounce in 2023 — a 7.6% upward revision compared with the March 2023 Resources and Energy Quarterly.

Price forecasts have been revised up sharply over the short-term, in recognition of additional upside risks, as well ongoing strength in safe-haven and central bank demand given the geopolitical unrest in Israel and the Ukraine. Persistent price strength through the September quarter 2023 was achieved despite the presence of several price- pressuring factors. Real bond yields have remained relatively high, the US dollar has remained at relatively strong levels, and gold-backed ETF holdings remain lower than in previous price peaks (ETF holdings were 11% down year-on-year in April 2023).

If US economic activity declines substantially and interest rate cuts currently expected by markets come to fruition in H2 2023, this could create an even more supportive environment for gold through lower real interest rates, a weaker US dollar and demand for gold ETFs as equity markets decline. Gold could provide protection as it typically fares well during recessions, delivering positive returns in five out of the last seven recessions.

After 2023, gold prices are forecast to fall by 3.5% a year to an average of US$1,774 an ounce in 2025, due to pressure from high real interest rates (as global inflation eases) and a gradual easing of safe-haven demand.

Australian gold exports rose in the March quarter 2023

Australia’s gold exports increased by 11% year-on-year to $6.0 billion in the March quarter 2023. The increase was driven by higher Australian dollar gold prices, which offset a 13% decline in export volumes. Export volumes fell despite an increase in mine production — a trend that has persisted since the June quarter 2021.

Australia exported $2.1 billion of gold to China in the March quarter 2023, down 18% year-on-year. Australian exports to the financial hubs (US, UK, Switzerland, Hong Kong and Singapore) were collectively worth $2.7 billion in the quarter — a 45% increase year-on-year. Within the financial hubs, exports to Singapore accounted for $1.2 billion.

Australian gold exports to decline over the medium-term

Australian gold export earnings are estimated to have increased marginally to $23 billion in 2022–23, as lower export volumes offset the impact of stronger Australian dollar gold prices. Australian gold export earnings are forecast to decline over the next two years — to about $22 billion in 2023–24 and $21 billion in 2024–25 — as increasing export volumes are more than offset by the impact of lower prices (Figure 10.5). Considering recent production and export trends, Australian gold export volumes have been revised down to 85% of forecast mine production.

Australian gold mine production decreased in the March quarter 2023

Australia’s gold industry produced 71 tonnes of mined gold in the March quarter 2023, down by 2.6% year-on-year. Production was adversely affected by heavy rainfall in the Northern Territory (NT), as well as northern parts of Queensland (QLD) and Western Australia (WA). Production at Newmont’s 15 tonnes per year Tanami project in the NT decreased by 36% year-on-year to 2.0 tonnes in the March quarter 2023. Newmont stated that record rainfall and associated flooding caused the closure of the main access route for supplies, leading to the cessation of milling operations for a few weeks in February. Tanami was also subject to heavy rainfall and winds, following the traversal of Cyclone Ilsa in April — although the company has not yet announced any production impacts.

Production at Evolution’s 2.5 tonnes per year Ernest Henry project decreased by 26% year-on-year to 0.4 tonnes in the March quarter 2023. Operations were suspended at the mine on 8 March following heavy rainfall and floods across the North West Minerals Province of QLD. Operations resumed on 18 April and are expected to reach normal levels by the end of the June quarter 2023.

Production at Regis Resources’ 10 tonnes per year Duketon project rose marginally year-on-year in the March quarter 2023. Production was lower than expected, due to a slower than planned ramp up of the new Garden Well South underground and unplanned maintenance at the Rosemont processing plant. In addition, Regis reported wet weather impacts at Duketon in late March.

Production at Newcrest’s 20 tonnes per year Cadia mine in NSW decreased by 11% year-on-year to 4.2 tonnes in the March quarter 2023. Lower production was driven by lower mill throughput, following an unscheduled mechanical breakdown of the concentrate filter presses at the Blayney dewatering facility. Cadia delivered first ore from its new panel cave project PC2-3 during the quarter, with work now focused on establishing the cave towards project completion.

Bucking the trend, BHP’s 4.5 tonnes per year Olympic Dam project has continued delivering record gold production, following the implementation of debottlenecking initiatives in 2022. Production in the March quarter 2023 increased by 67% year-on-year to 1.5 tonnes.

Australian gold mine production to increase over the next two years

Australian gold production is forecast to rise from 298 tonnes in 2022–23 to 317 tonnes in 2024–25, as significant new projects and mine expansions come online. Production will continue to ramp up for recently commenced projects, such as Red 5’s King of the Hills project, Pantoro’s Norseman project, and Calidus’ Warrawoona Gold Project.

Bellevue Gold’s 5.7 tonnes per year Bellevue gold mine in WA is expected to come online in the second half of 2023. Newcrest and Greatland Gold’s 5.0 tonnes per year Havieron project is expected to come online in 2024, with an updated feasibility study forthcoming. Northern Star Resources’ Super Pit gold operation will begin long-term expansion in 2024, growing to 675,000 ounces by 2027–28. Weaker than expected gold prices present a downside risk to the forecasts of Australian gold production. Much weaker prices could see more high-cost Australian producers cease or cut back their operations.

Gold exploration expenditure declined in the March quarter 2023

Australia’s gold exploration expenditure decreased by 21% year-on-year to $286 million in the March quarter 2023 (Figure 10.8). As a result, gold’s share of Australian mineral exploration expenditure declined to an 8-year low of 32% in the quarter, down from 43% a year earlier. This decline in exploration occurred despite soaring Australian gold prices, which have historically motivated high exploration expenditure. Western Australia remained the centre of gold exploration activity in Australia, accounting for 70% of total gold exploration expenditure.

At a time when a gold Goliath in Newmont has acquired an Australian gold icon in Newcrest, there has been many gold executive movements in 2023 from January Evolution Mining found a new CFO in Barrie Van Der Merwe and Perseus Mining’s Chris Woodall retired and Canadian David Schummer accepted the COO role after a well-executed succession plan.

Gold Road has appointed Julie Jones as General Counsel & Joint Company Secretary whilst Resolute Mining added Chris Eger as CFO. At St Barbara Andrew Strelein is now the Managing Director after replacing interim MD Dan Lougher.

Lastly Regis Resources has well respected Michael Holmes joining their team as the new COO and Red5 Ltd had David Coyne appointed as CFO & Joint Company Secretary.

There has been a reluctance for international talent to negotiate roles in Australia, as the US Dollar has been strong against a weakened Australian currency at 63 cents. Companies have had to carefully design incentives to enable quality talent to our shores.

Blenheim Partners has been delivering many C-Suite roles (CEO, CFO and COO in particular), Strategy and Operational roles in the Gold Sector. If you are thinking through your team’s executive search and succession planning requirements, I would be happy to arrange a briefing.

Bradley Clyde

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