Gold miners usually cut output when prices soar. Not this time
Record gold prices have tempted some Australian miners to boost production, bucking the industry’s long-term trend to cut output during boom times to preserve their dwindling resources.
Soaring prices have filled gold miners’ coffers and encouraged them to spend big on increasing their processing capacity – a move that allows them to make money from previously uneconomical stockpiles of ore.
Gold mines tend to produce less when prices are high because miners pivot to process poorer quality ore. This strategy is used to extend a mine’s life and keep it operating throughout a downturn, although it usually leads to lower output and higher production costs.
“This part of the cycle is the only time that low-grade ore makes any money,” said Paul Hissey, an analyst at Moelis. “When the price goes up, companies will pivot to mine lower grade ore. All the material that was previously uneconomic now becomes viable, and you might find that you’ve now got 20 years of mine life ahead of you, instead of only 10 years. However, mining lower grades costs more, so naturally when prices go up, costs always follow.”
