After enduring several challenging years, Australia’s gold producers are finally experiencing a resurgence. Historically overshadowed by the battery metals boom, Australian gold miners are now enjoying renewed investor interest as the focus shifts from lithium and nickel to gold.
This shift comes as the price of gold in Australian dollars reaches unprecedented levels, surpassing A$3,600 ($2,358) per ounce. The optimism among gold miners was palpable at the Noosa Mining Investor Conference in Queensland in mid-July.
“It’s fair to say, it’s a great time to be a gold producer,” remarked Mark Zeptner, Managing Director of Ramelius Resources. This statement marks a significant turnaround from just two years ago when soaring costs outpaced gold price increases, leading to substantial margin squeezes.
Improving Conditions and Rising Fortunes
The fortunes of Western Australia’s gold sector are closely linked to the state’s iron ore industry. During iron ore booms, the major miners often attract skilled labor, impacting the gold sector, which tends to operate with lower margins. The COVID-19 pandemic exacerbated this issue, with WA’s border closures creating severe labor shortages and driving up costs for the gold sector.
Zeptner noted that these labor and cost pressures have eased recently. Ramelius, which produces between 250,000 and 300,000 ounces annually, had been significantly impacted by labor shortages, particularly in road train drivers essential for transporting ore from satellite deposits to a central mill.
Financial Rebounds and Record Margins
In early July, several Australian gold producers, including Ramelius, Capricorn Metals, Red 5, Westgold Resources, and Regis Resources, reported improved cash flow for the June quarter. Ramelius achieved a record margin of 48% in the 2024 financial year, with projections to rise to 55% in the current year. Northern Star Resources and Evolution Mining also reported record net mine cash flows.
Evolution CEO Lawrie Conway noted that despite inflationary pressures averaging around A$110 per ounce, the company’s cash flow has increased significantly due to higher gold prices, which have offset the cost increases.
Rising Costs and Inflationary Pressures
Northern Star’s all-in sustaining costs (AISC) for FY24 were reported at A$1,815 per ounce, with guidance for FY25 set between A$1,850 and A$2,100 per ounce, higher than anticipated. The company has renegotiated major contracts at higher costs, and increased gold prices have led to higher royalty payments. Northern Star’s Managing Director Stuart Tonkin mentioned that some cost-saving opportunities might arise as the market stabilizes.
Evolution expects a 5% increase in labor costs for the upcoming financial year, with additional costs related to inflation and a recent increase in Australia’s superannuation guarantee.
Managing Cost Inflation
As gold prices rise, mining more marginal ounces can lead to cost creep. Tonkin from Northern Star acknowledged that adding lower-grade material to their mining plan could impact AISC, though higher gold prices provide a buffer. The company remains optimistic about maintaining profitability despite rising costs.
Easing Labor Shortages
Labor shortages that plagued operations during the pandemic are gradually improving. Evolution’s Mungari operation in WA, which experienced high staff turnover, has seen improvements in job filling and reduced turnover rates. The closure of nickel mines and job cuts by major companies like BHP and Fortescue have increased the availability of skilled workers.
Luke Creagh, former COO of Northern Star and now leading Ora Banda Mining, noted that attracting workers to smaller junior producers has become easier. However, he still sees a broad skills shortage that the industry needs to address through training.
Challenges and Optimism
Despite the positive shift, the sector has seen several high-cost mines close and companies like Wiluna Mining Corporation and Navarre Minerals fail. Calidus Resources recently entered voluntary administration due to high debt.
Ora Banda Mining, led by Creagh, is poised to benefit from the strong gold price. The company expects a 30% increase in production and a 25% reduction in costs over the next year. Creagh expressed optimism about the sector’s prospects, citing the favorable gold price environment.
“The gold price is fantastic and looks strong for the foreseeable future, which is excellent for gold companies,” Creagh concluded.
