Gold Digger: A global carbon tax could hit gold stocks right where it hurts
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A global carbon taxation regime could slash gold miner profit margins by up to 45% unless an effort is made to reduce greenhouse gas emissions, Metals Focus says.
Some countries, such as Canada and Sweden, already impose carbon taxes and there is certainly scope for this to become widespread across the globe.
“The carbon tax in Sweden is currently around US$130/t,” Metals Focus says.
“If this tax was applied to this group of companies [large global gold miners], which had GHG emissions of 0.94t CO2e/oz in 2020, that would equate to an additional cost of US$123/oz.”
It’s Gold Peer Group Analysis report estimates a comprehensive ‘shareholder cash cost’ — which includes AISC, project capex, cash taxes and interest – of US$1,542/oz for the world’s biggest gold miners in Q2, 2021.
This compares to an average gold price in the quarter of US$1,815/oz, leaving a margin of US$273/oz to pay dividends, repay debt or for corporate activity.
“The estimated additional cost from potential carbon taxes would therefore reduce this margin by 45% at the current cost of production and gold price,” Metals Focus says.
“This demonstrates the potentially significant economic impact of carbon emissions on gold mining operations should they be taxed at some point in the future.”
Major gold miners are responding to the likely cost impost by announcing greenhouse gas (GHG) emissions targets.
In November 2020, Newmont, the world’s biggest gold miner, announced it was targeting a 30% reduction in GHG emissions by 2030 and aiming to have net zero emissions by 2050.
Barrick updated their GHG emissions targets in April 2021, which broadly align with Newmont’s.
Most of the other major gold producers have announced similar goals for their emissions. Most recently, a 56MW microgrid powering Gold Fields’ Agnew Gold Mine with an average of 50–60% renewable energy — even achieving up to 85% in favourable weather conditions — was officially opened.
It is currently Australia’s largest hybrid renewable microgrid, and the first in the country to power a mine predominantly with wind- generated electricity.
Gold prices got a trifecta of central bank action that is revitalizing bulls, says OANDA’s Edward Moya. The price is currently back near $US1,800/oz after plunging to ~$US1,760/oz earlier in the week.
“First a dovish Fed taper, then a surprise hold on interest rates by the BOE, and as surging inflation forced the Czech National Bank to raise borrowing costs more than expected,” Moya says.
“Major economies are turning dovish as developing countries scramble for inflation-hedges.”
Even as US stocks continue to make fresh records, fixed income traders are sending Treasury yields across the curve sharply lower, Moya says.
“Recently, tumbling Treasury yields would lead to dollar weakness but that is not happening today,” he says.
“The FX market would have you believe that Wall Street is having a bad day, as the Japanese yen is the best performing currency, with the dollar in second place.
“If the Fed and BOE are both in the early stages of a policy mistake, that is great news for bullion.
“A scramble to tighten, would ultimately choke growth and lead to significant safe-haven demand for gold.”
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S2 RESOURCES (ASX:S2R) +108%
S2R – also known as ‘the crew that unearthed the world-class Nova deposit’ — emerged the winner of a ballot for Australia’s hottest exploration tenure next to the Fosterville gold mine in Victoria.
S2 has traversed the world from WA to Scandinavia in its search for gold and other metals since it was spun out of Sirius following the acquisition of its Nova nickel mine by IGO (ASX:IGO).
It has now landed in Victoria, where it pipped a host of other juniors to secure one of four exploration blocks released by the Victorian Government alongside one of Australia’s and highest-grade gold mines in the 160-year-old Bendigo gold field.
S2’s tenure literally surrounds Fosterville, which produced more than 640,000oz at 33.9g/t in 2020.
“The tender comprised four blocks, however S2 regards Block 4 the most prospective as it includes extensions of the Fosterville host stratigraphy, similar structures, and known gold occurrences,” the company said in a statement to the ASX today.
“These occurrences have only been sparsely and shallowly drilled and may represent the uppermost tips of south plunging shoots analogous to those documented at Fosterville itself.”