Tide turning in favour of gold producers, driven by rising US...

Tide turning in favour of gold producers, driven by rising US prices and falling dollar

By Kathryn Diss
Updated about 10 hours ago Fri 20 Mar 2015, 9:19am

It has been years since Australian gold miners have had the odds in their favour, but their fortunes are starting to change.
Business commentator Tim Treadgold said the turnaround was being driven by the combination of a rising US gold price and a lowering Australian dollar.
"The price in Australian dollars has gone up a lot because the Australian dollar has gone down a lot," he said.
"But also costs are starting to fall in the gold industry, labour costs are coming down."
Since the middle of last year, the Australian dollar has fallen sharply against the greenback, from almost 94 to around 75 US cents.
So as the gold price in US dollars lifted, the price in local currency gained even more.
That meant the Australian dollar gold price was around $1,500 an ounce. There are bidding wars starting... old gold mines that closed down at a lower Australian dollar price are now being revisited because there is an expectation the local gold price will go up. Tim Treadgold

Mr Treadgold said that had attracted the attention of international investors.
"London loves gold and they're starting to revisit Australia," he said.
"Australia has become a cheaper place in which to invest, the pound's stronger, the Aussie dollar's cheaper."
He said companies were even starting to bid over assets like Northern Star swooping Metal X on its bid for Tanami Gold's project in the Northern Territory.
"There are bidding wars starting, people are going back into old gold assets," Mr Treadgold said.
"So old gold mines that closed down at a lower Australian dollar price are now being revisited because there is an expectation the local gold price will go up."
Attracting investment 'still tough'

However, Simon Bennison from the Association of Mining and Exploration Companies said companies were still finding it tough to attract investment from equity markets.
"Companies are still very active in the production space but they are doing it through the debt markets," he said.
"The equity markets have all but dried up, their options to fund production are extremely limited and the cost in servicing that debt is not cheap."
He said while the price rise had turned losses into profits for many, their margins remained wafer-thin.
"Many of them are carrying debt, so when you look at the all-in costs of production for a lot of those companies, there's lucky to be a $100 or $200 margin," Mr Bennison said.
"Some of them are in a negative cash position once they've serviced their debt."
He said he was concerned the improvement in conditions could influence the State Government's upcoming decision on whether to raise the royalty rate on gold miners.
"We see an enormous amount of volatility between price and the dollar and I think that's unfortunately going to continue," he said.
"So to take a snapshot in time like now with everything being as tight as it is despite the luxury of the dollar, prices can plummet, the dollar can get another correction and go to 80-odd cents.
"And low and behold we could be back where we were 12 months ago.
"We don't see any valid reason to change it, it's certainly not in the interests of the Government because a lot of it is going to be lost through any GST distribution."
If history is anything to go by, Mr Treadgold believed the gold industry could once again be WA's savour in the face of tumbling iron ore and oil prices.
"Gold has been Western Australia's savour on at least three previous occasions," he said.
"It dug us out of a recession in the 1890s, it was a savour in the 1930s, it came back again in the 1980s, and you could well see gold making a big return in the 2020s.
"There's a 30 or 40-year gap between all of those events but that's seems to be the pace in which gold goes in a cycle."