US gold production falls back on lower gold prices

Gold has fallen around 40% from its peak in terms of the US dollar and that is beginning to take its toll on US gold mine production. The price fall may not have been nearly as severe in the home currencies of other producing nations, but in once dominant South Africa, ageing mines, and the huge costs involved in mining gold at depths of 2 miles below surface in some cases, the industry also looks to be continuing to decline – but some other major producers are faring rather better. – Lawrie Williams

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by Lawrie Williams

While most gold mining countries have seen some considerable benefits in terms of the devaluation of their domestic currencies against the US dollar those operating in countries which use the US dollar, or have their currencies tied to it, do not benefit at all. This means that there have been huge advantages for gold miners in countries like Australia, Canada and South Africa amongst the world’s major gold mining nations in that with revenues in dollars and most costs in the local currency, mining economics are wildly different from those in the USA, or countries with currencies tied to the US dollar (See: Gold stock investors following the ‘wrong dollar’).

This has been brought home by latest statistical data showing a sharp decline in gold output in the USA (the world’s fourth largest gold producer), while that in Australia – the world’s No. 2 has been growing. The latest published US data relates to the month of May and showed that gold output declined 14% year on year falling from 17.3 tonnes in May 2014 to 14.9 tonnes this year. The US may be the world’s fourth largest producer of the precious metal, but to put its production  in perspective this amount of gold is less than a quarter of the amount of physical gold moving through the Shanghai Gold Exchange each week during August!

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A gold mine in Nevada, United States

For the January to May period, the US Geological Survey (USGS) reports total US gold production at 76.9 tonnes – down 10% on the total for the same 5 months in 2014, with most of the decline, not surprisingly, occurring in Nevada – the country’s leading gold mining state.

While the fall in the gold price in US dollars is obviously having a major impact there, many of the US mines produce significant amounts of silver as a byproduct, and the silver price has fallen even more dramatically than gold, being down around 25% in the past year. This is causing the gold mining companies to put mines which have become unprofitable on care and maintenance in the hope that they will be able to re-open them if the gold price should rise significantly.

At the current rate of decline, US gold output this year could fall to below 190 tonnes and the country could even be overtaken by its northern neighbour Canada as the world’s fourth largest gold miner. While Canada was still comfortably behind the USA in gold production last year with output of 151.3 tonnes according to consultancy Metals Focus, last year production grew at over 20%. A continuation of this growth rate could see Canada move up to fourth or fifth place in the global gold mining hierarchy, leapfrogging South Africa and Peru where production has been on the decline.

While South Africa’s gold production losses are to an extent being mitigated by the weakness in the Rand against the US dollar, it is facing something of a different problem with its aging mines and great depths of mining (over 2 miles below surface at some operations) meaning it is becoming ever harder to control mining costs per ounce of gold. Many, if not most, of the country’s remaining gold mines are marginal on an AISC basis at prevailing gold prices. With some rather fraught wage negotiations between mining companies and unions currently under way, and with annual output already trending lower yet again we will likely see the country slipping into 7th place globally with annual production of only around 150 tonnes in 2015 – such a far cry from the early 1970s when South Africa produced around 80% of the world’s gold with around 1,000 tonnes of gold produced each year. Now it is very much an industry in decline – and a potentially accelerating one if substantial wage increases need to be accommodated, to run alongside some big power cost increases which have been applied across the board. Further mine or shaft closures at already loss-making operations would then look to be inevitable, although no doubt will be fought by both unions and government.

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