Australian gold project development stalled – recovery 2019?

Australia’s gold production increased in the first half of this year, but both export volumes and values have declined, Australia’s Bureau of Resources and Energy Economics (BREE) reported Wednesday.

“Gold exploration expenditures in Australia has continued to fall and new project development has stalled in response to lower prices,” said BREE Resources Program chief John Barber.Kaminak Gold

“In 2015, a higher US interest rate, albeit marginally higher, is expected to further reduce the appeal of gold relatively to other investment assets and support lower prices,” Barber forecast. “A moderate rebound in jewelry purchases in response to lower prices is not expected to offset this decline in gold investment or market speculation that accompanies it.”

“The average price of gold is forecast to decrease a further 4.7% in 2015 to US$1123 per ounce,” he advised.

“Forecast lower prices in 2014 and 2015 are expected to slow the development of new mines with production from low cost projects that do start up likely to be offset by declining production at existing mines or closure of higher cost producers,” said BREE’s Resources and Energy Quarterly, September 2014. Nonetheless, gold mine production is Australia is estimated to have increased 7.5% and totaled 274 tonnes in 2013-14.

“Looking forward, the robust production growth in 2013-14 is not expected to be repeated over the outlook period. Lower forecast prices over the next 18 months are expected to challenge a number of high cost producers in Australia and many of the easier gains in cost cutting have already been reaped.”

The country’s gold production is projected to increase at an average annual rate of 1% and total 228 tonnes in 2018-19 with most of the growth occurring later in the period, BREE forecast.

“A rebound in private investment demand for gold is not anticipated in the short term as prices as forecast to continue to declining,” said the report. “All investment purchases except those of central banks are forecast to be lower in 2014 relative to 2013.”

Demand for gold bars and coins is forecast to decrease further in 2015 and ETFs are expected to remain net sellers, according to BREE. A projected recovery in investor demand is expected towards 2019.

Meanwhile, Wayne Calder, BREE deputy executive director, observed, “The prospects for the resources and energy industry remain positive. Continued economic growth in highly populated emerging economics will sustain increased demand for both resources and energy commodities into the future.”

“Closer to home Australia is moving decisively from the investment phase of the mining boom to the production phase,” Calder noted. “We will continue to see expansions in capacity from the Australian resources and energy sectors with increasing supply of iron ore and coal as well as the commencement of major new LNG projects across Australia.”

IRON ORE OUTLOOK

Iron ore prices have fallen 37% since the start of this year due to increase supply from Australia and moderating demand growth in China, observed BREE’s Ben Witteveen. “While prices are expected to rebound from current lows, over the medium term the peak of each rebound and trough is likely to be lower as more supply enter the market.”

Iron ore prices are forecast to average US$94 a tonne for the full year 2014, down 26% relative to last year. Over the next five years, iron ore prices are projected to average between US$90 and US$95 tonnes, said the BREE report.

“Decisions to close mines are unlikely to be made easily given the cost with placing operations on care and maintenance,” said Witteveen. “Iron ore suppliers are therefore likely to persist as long as possible but eventually prices that are substantially lower than high cost supplies from both exporters and domestic producers in China will result in reduced supply.”

In 2015 China’s ore iron imports are forecast to increase by 6.6% and total 933 million tonnes, according to BREE. Over the period from 2015 to 2019, China’s iron ore imports are projected to increase at an average annual rate of 4.7% and to total 1.12 billion tonnes in 2019.

A projected decrease in Japan’s steel production is expected to reduce iron ore demand by an average of 0.3% during the same period, while South Korea’s iron ore imports are projected to increase at an average annual rate of 1%.

Australia’s iron ore exports are forecast to increase 22% this year to 707 million tonnes, said BREE. In 2015 Australian iron ore exports are forecast to grow by 8.6% to 768 million tonnes.

Brazil’s iron ore exports are forecast to grow by 10% this year to 362 million tonnes, while India’s iron ore exports are estimated to grow by 29% to 12 million tonnes.