The Asia Miner

JUL-SEP 2019

The ASIA Miner - Reporting Important Issues to Mining Companies in the Asia Pacific Region

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the asia miner • volume 16 • issue 3 29 FEATURE: Gold The ebbs and flows of gold. Image source ©World Gold Council CENTRAL BANKS Net buying by central banks reached 145.5t in Q1, 68 per cent higher y-o-y. This is the highest volume of Q1 net purchases since 2013 (179.1t), comfortably exceeding the five-year quarterly average of 129.2t. On a rolling four- quarter basis, demand reached a record high for our data series of 715.7t. The factors that drove central bank net purchases to a 50-year high in 2018 remained relevant at the start of 2019. Economic uncertainty caused by trade tensions, sluggish growth and a low/negaঞve interest rate environment conঞnued to weigh heavy on reserve managers' minds. And geopoliঞcs sঞll cause consternaঞon. In the face of these challenges, central banks conঞnued to accumulate gold. Russia was again the largest buyer, adding 55.3t in Q1. This brought gold reserves to 2,168.3t (19 per cent of total reserves). Russia bought 274.3t in 2018 – the fourth consecuঞve year of +200t increases – while drasঞcally reducing its US Treasury holdings, as part of its 'de-dollarisaঞon' drive. Shortly a[er the end of Q1, Sergey Shvetsov, deputy head of the central bank, stated that it is necessary to "increase forex and gold reserves even more" in the face of "persisঞng sancঞon risks." Q1 saw country-level sales total 11.3t. This is the highest level of sales seen for some ঞme and was primarily from three banks: Uzbekistan, which began reporঞng its gold reserves in March, sold 6.2t in Q1, while Mongolia (-3.4t) and Tajikistan (-1t) were the only other banks whose reserves declined by at least one tonne. TECHNOLOGY Q1 2019 saw further falls in technology demand, chiefly due to a weakened electronics sector across the automoঞve, consumer and lighঞng sectors. Other technology applicaঞons registered a small increase in demand, but dental demand conঞnued its decline with an 11 per cent y-o-y fall. Gold used in electronics fell 4 per cent to 62.9t during Q1, a consequence of a sector-wide slowdown. The LED sector suffered another weak quarter, with gold used in these applicaঞons 5-8 per cent lower y-o-y. Ongoing US-China trade fricঞon conঞnued to weigh heavily: more than 30 lighঞng applicaঞons are now subject to addiঞonal duঞes and this has led to some producঞon shi[ing out of China. In the longer-term, gold demand within the LED sector is expected to come under further pressure as micro-LED packages begin to replace mini LEDs, leading to lower gold bonding wire demand. SUPPLY Total supply was largely unchanged in Q1: modest growth in mine producঞon and recycling were offset by a decline in net hedging. In Q1, mine producঞon grew marginally to 852.4t (+1 per cent y-o-y), the highest level of Q1 output on record. Given the seasonality in gold producঞon – where output in the first quarter is typically the weakest – this represents a strong start to the year. The conঞnued ramp-up of significant projects in key gold mining jurisdicঞons supported growth in Q1. In Canada, the fi[h-largest producing naঞon in 2018, the conঞnued ramp-up in producঞon at Brucejack, Rainy River and Moose River, as well Meliadine coming online, boosted output by 9 per cent y-o-y. Russia producঞon grew by 4 per cent y-o-y in Q1, primarily due to the ramp-up of the Natalka open-pit mine. This was also supported by growth at several other projects, parঞcularly in the far east of the country. Australian output rose by 3 per cent y-o-y, thanks to the ramp-up of Mount Morgans and Cadia Valley. Kazakhstan mine producঞon grew by 26 per cent y-o-y, driven mostly by the ramp-up at the Kyzyl project. Aggregate Q1 producঞon in Papua New Guinea gained 11 per cent y-o-y, with output from Lihir, Porgera and Hidden Valley rising. But some producing naঞons saw notable declines. In China, the impact of stringent environmental regulaঞons was more muted: naঞonal gold producঞon fell 2 per cent y-o-y in Q1, compared with y-o-y declines of up to 8 per cent since 2016. Most of the major mining companies within the country are now compliant with the regulaঞons a[er a tough adjustment period. Argenঞnian gold output fell by 7 per cent y-o-y in Q1, due to a combinaঞon of lower producঞon at Veladero and the shutdown of Alumbrera. The largest Q1 y-o-y decline was in Indonesia, where producঞon slumped 45 per cent. This was primarily due to the exhausঞon of higher-grade ore from the final phase of the Grasberg open pit, and not enঞrely unexpected as Grasberg transiঞons to underground operaঞons. Arঞsanal and small-scale mining (ASM) has become a larger part of annual mine producঞon. Given the nature of ASM acঞvity, reliable data are extremely difficult to come by. There are several esঞmates regarding the scale of ASM, with most suggesঞng now accounts for somewhere between 15 per cent and 20 per cent of global annual gold mine producঞon. This growth has been prompted by a few key factors: higher gold prices, populaঞon growth, the lack of economic opportunity and the spread of mining experঞse have boosted ASM output, most prominently in Africa. This lack of reliable data, however, not only increases the chances that esঞmates can be inaccurate, but also heightens the need to constantly review the quality of the data on hand.

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