Gold output from the world’s mines is expected reach a record high this year, putting behind it a difficult, Covid-19-disrupted 2020 and taking advantage of forecast record high prices.
In its Gold Focus 2021 report, Metals Focus predicted an average record high gold price of $1,820/oz, or R25,136/oz, a 3% increase compared with 2020 when the price jumped 27%.
“The desire to own gold as an inflation hedge will be more prevalent this year,” said Neil Meader, director of gold and silver at Metals Focus.
“As the economic recovery remains uneven, monetary and fiscal policies should continue to be accommodative, after the unprecedented stimulus measures of 2020. With the world awash with liquidity, inflationary pressures are starting to build,” he said.
Global gold supply dropped the most in a decade during 2020, falling 2.4% to 4,757 tonnes, with the 119 tonnes decline in mined metal the largest contributor. Mines worldwide were disrupted by coronavirus-related lockdowns.
Mined supply of metal was 3,478 tonnes, down more than 3% from the previous year. SA’s mines were the last to fully lift restrictions on operations, returning to unfettered production in June compared with other countries that also went into lockdown in March 2020.
Metals Focus estimated the pandemic resulted in a 270 tonnes reduction in global mined metal during 2020.
New high
“The year-on-year decline in output last year was actually the biggest since the early 2000s. At the start of the year, we had been expecting growth in output,” said Adam Webb, director of mine supply at UK-based Metals Focus.
“Mine production will more than recover 2020’s losses, to reach a new all-time high,” he said.
Demand for gold fell a heady 27% last year to 2,837 tonnes, with an 810 tonne drop in jewellery offtake and a 344 tonnes reduction in official purchases by central banks the key drivers.
Looking ahead, Metals Focus predicted mined gold supply jumping 215 tonnes in 2021, offsetting a 71 tonne reduction in recycled metal, pushing global supply of the metal nearly 4% higher to 4,922 tonnes.
SA is unlikely to play any meaningful role in global gold supply after output shrank to below 100 tonnes during 2020. The last time SA produced less than 100 tonnes of gold was the 92 tonnes generated in 1903, the year after the end of the Second Anglo-Boer War.
“SA production dropped below 100 tonnes for the first time since the early 1900s,” said Webb.
Eroded industry
SA ranked 11th out of global gold suppliers in 2020 and orders of magnitude smaller than China, Russia and Australia, the big three accounting for about a third of the world’s gold.
For decades during the 20th century, SA was by far the world’s largest source of gold, with peak output of 1,000 tonnes in 1970. In recent years, a lack of investment in new production, deeper and older mines, falling grades and productivity, and soaring costs have eroded SA’s gold industry.
Large producers such as AngloGold Ashanti and Gold Fields have either sold all their gold mines or kept a small presence in SA as they focused on more profitable, shallower mines elsewhere.
Harmony Gold, which has bought most of AngloGold’s old mines, is now SA’s largest source of domestic gold. Sibanye-Stillwater, in second place, has touted a potential merger with AngloGold and Gold Fields to give the company essential geographical diversification away from its three deep-level mines in SA.
The strong gold price during 2020 more than offset a 4% increase in all-in sustaining costs, which is regarded as the most accurate metric of what it takes to produce gold.
The all-in sustaining cost margin grew 77%, or an average of $784/oz, the highest level in Metals Focus’s records going back to 2010, said Webb.
“Almost the entire industry was profitable in 2020,” he said.
The industry generally made use of the high gold price to extract lower grades, which were suddenly profitable to mine.
The world average grade fell 6% year on year, the biggest on Metals Focus’s books, to an average of 1.33g/tonne.
“There were additional factors driving this change, such as the temporary Covid-19 closures of some high-grade operations,” Webb said, adding the closure of the Porgera mine in Papua New Guinea, with a grade of 3.4g/tonne, is another reason.
Merger and acquisition activity fell 37% to $15.2bn mainly due to the pandemic.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.