Gold production to hit 20-year low

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AUSTRALIA is about to record its lowest annual gold production in 20 years, despite the price of the precious metal having recently hit a record high.

Production in the September quarter rose slightly from the previous quarter, with output totalling 56 tonnes, says mining consultant Surbiton Associates' latest industry report.

But it was still the third lowest quarterly production figure in 20 years, Surbiton Associates director Sandra Close said.

"It looks as though Australia's gold production for the full 2008 year will be the lowest since 1989," Dr Close said.

"It will be somewhere between 25 to 30 per cent lower than the peak year of 1997."

Offsetting the lower output, however, is the soaring value of gold, with its average price in Australian dollars near $1000 an ounce during the quarter.

"In early October, Australian gold prices rose to an all-time record of just over $1400 per ounce during intra-day trading," Dr Close said.

"This was due to a combination of a high US dollar gold price and a rapidly declining Australian dollar exchange rate."

Investors seeking security have flocked to gold in recent months as world stock markets plunge, with the physical demand all but overwhelming producers of gold for investors such as the Perth Mint.

The September quarter was a mixed one for individual miners with several reporting strong results while others went to the wall, the report said.

GBS Gold Australia, the operator of Union Reefs south of Darwin, and Mercator Gold, at Meekatharra in Western Australia, went into administration during the quarter, Dr Close said. "The low-cost producers are making excellent profits, but those at the high end of the cost curve are battling," she said.

"Some of the miners and some of the explorers with limited cash resources are vulnerable."

The economic downturn has begun to impact mineral exploration.

Governments need to look at encouraging exploration as it is key to securing long-term prosperity in Australia's gold mining industry, Dr Close said.

"Commodities such as iron ore, base metals and coal are dependent on industrial demand but gold can always be sold," she said.

"Gold projects can be developed relatively quickly and as gold is a high-value, low-volume product, it does not require expensive transport and port facilities."