Australia has Glittering Opportunities in Gold

September 25, 2012 at 10:15


The resources industry conjures up images of vast open pits and deep mine shafts producing enormous quantities of ores moved by around by massive machines.

It therefore comes as a surprise to many when they learn that the entire quantity of gold ever produced worldwide is only about 175,000 tonnes. To put this in perspective, it would cover a rugby field to a depth of about 135 centimetres. Compared to many other resources, this is a minuscule amount.

Interest in gold as an investment class has increased in recent years in parallel with the gold price.

Kerry Stevenson from the Sydney company Symposium, says, “There is a lack of understanding about how gold can form part of a balanced investment portfolio.”

This lack of understanding extends as far as actually buying the precious metal – Stevenson says she gets asked on a regular basis, “Where can I buy gold?”

Stevenson also believes the increased interest in gold is related to the volatility of markets in recent years. “There’s a general thirst for knowledge about what’s going on in the world at the moment and gold is part of that story,” she says.

The education theme is echoed by Jordan Eliseo, director of investments at LJ Financial Group.

“In volatile times like these, Australians would benefit from reviewing their existing investments and superannuation,” Eliseo says. “There are many good reasons to consider having exposure to gold in your portfolio.”Eliseo urges investors to regularly review their portfolios in concert with an independent financial advisor.

Meanwhile, out on the Australian goldfields, it’s been a busy time. Production has been fairly consistent over the past couple of years, but that may be about to change. “With several new and rejuvenated projects coming on stream in late 2012 and in 2013, we should see production rise,” says Sandra Close of Surbiton Associates, an independent consulting group specialising in Australian goldmining.

Close cites Regis Resources’ new Garden Well project as one that will add significantly to annual production, and output of 240,000 ounces is expected.

Perhaps the busiest place in the Australian gold sector recently has been in corporate boardrooms. Takeover activity has increased, and significant interest is coming from overseas.

“Overseas investors are showing considerable interest in Australian gold operations,” Close says. She estimates that the Australian gold sector is now about 60 per cent foreign-controlled.

Three international companies in particular have been active of late. Singapore’s LionGold Corp has been the most active, taking over Castlemaine Goldfields and also taking a 10 per cent stake in Citigold.

On top of this, LionGold launched a failed takeover for Navigator Resources, while its bid to buy Bass Metals’ Hellyer interests in Tasmania is in dispute. Meanwhile, Close says, “Chinese-owned Zijin Mining has just taken over Norton Gold, valuing the company at about $215 million, while Canada-based Crocodile Gold, which has Union Reefs in the Northern Territory, has now also acquired both Fosterville and Stawell in Victoria, previously owned by AuRico (Gold).”

But not all of the takeover activity has come from overseas. Back home, Silver Lake Resources has taken over Integra Mining, and a combined annual output of about 400,000 tonnes is expected.

While overseas companies are eying off Australian gold assets, another trend has appeared in recent years and that is the increasing proportion of exploration dollars being spent overseas by Australian miners on both gold and other minerals.

Close said uncertainty and difficulties surrounding the Australian mining industry are driving this trend because in some instances, the potential rewards, after allowing for the risks involved, are seen to be better offshore than in Australia.

“Exploration and development dollars flow to wherever the conditions are seen as being the most attractive”, she says and adds that “its now reached the point where over half of all the exploration expenditure by Australian-listed companies is being spent overseas”. Close lists the three key proponents here as unsettlement caused by the Mineral Resources Rent Tax, the introduction of a carbon tax by a government which said it would not introduce one, and uncertainty regarding the diesel fuel rebate.

So what’s happening to the gold price? Eliseo would not speculate, other than to say that he expects the global debt crisis to continue to cause market volatility; that central banks in both Europe and the United States will continue easing monetary policy; and that these factors have historically supported the gold price.