• Metals Focus: world’s biggest gold miners have seen production fall hard on a per share basis over past decade
  • Gold giants used M&A (dilutionary) to cover a lack of organic growth and exploration success as production costs have also risen
  • Gold Road hits guidance at Gruyere for 2022, but RBC says December production fell short of forecasts


Gold miners have had to search deeper and harder to find the precious metal over the past decade, but does it ever feel like gold majors like Newcrest (ASX:NCM), Barrick, Newmont and Gold Fields seem to be running in place?

A new analysis from Metals Focus shows the world’s 12 biggest gold producers have seen their growth stall and even fall backwards despite prices lifting to unforeseen highs over the past ten years.

A new report from analysts at Metals Focus shows the group’s total equivalent gold production has tumbled 10% since 2013.

But a lack of organic growth options and exploration success within their own portfolios has made the impact even worse, with miners looking to mergers and acquisitions (M&A) to add to their production profile.

That has seen gold miners dilute shareholders by issuing new shares to fund capex and scrip to get deals across the line.

Gold production on a per share basis has fallen from a touch over 5.5ozpa in 2010 to a low of ~2.5ozpa in 2020, since rebounding slightly to circa 3ozpa.

“Looking at this metric for the 12 major gold producers covered in the Gold Peer Group Analysis highlights the challenges the gold mining sector has faced for over a decade,” Metals Focus analysts say.

“Production has declined and yet the number of shares in issue has nearly doubled as companies have issued new shares to acquire companies or to raise cash for capital expenditure.

“This, combined with other factors, such as rising production costs, has led to the combined market capitalisation of these major gold producers shrinking since reaching their peak in 2010, despite a significantly higher gold price over recent years.”


Gold costs rise while payments to governments and local businesses outstrip shareholder returns

Metals Focus and, indeed Stockhead have waxed lyrical on the rising trend of production costs which have chilled margins even as prices have soared, hitting record highs of ~US$2070/oz in 2020.

While prices of US$1870/oz today are near those levels, many gold miners are still making a loss, with companies including Gascoyne Resources (ASX:GCY), Aurelia Metals (ASX:AMI) and Dacian Gold (ASX:DCN) recently pausing production at various mines due to margin pressure.

Metals Focus says production costs have caught up to the majors as well.

“This can be seen when looking at our shareholder cash costs metric in the Gold Peer Group Analysis,” analysts said.

“This metric includes all costs and cash taxes paid and gives a unique impression of the cash margin for the sector. On this basis, average margins for the 12 major producers covered in our report fell by 76% q/q to $39/oz in Q3.21, their lowest level since Q2.19.”

ESG concerns have also risen across the sector, with a growing focus on reducing Scope 1 and 2 greenhouse gas emissions. The big outlier is Harmony Gold, a major South African producer which is reliant on coal power from the country’s disintegrating power supplier Eskom.

Others have been able to reduce their reliance on fossil fuels, with Yamana Gold’s 0.18t/oz CO2 intensity (largely due to grid hydropower) a big factor in its desirability during a bidding war between Gold Fields and the successful Agnico Eagle-Pan American Silver consortium last year.

At the same time the focus from companies on demonstrating returns to local communities has grown, with government payments (US$9b) and local procurement (US$16b) far outstripping returns to shareholders (US$5b).

“For most major gold producers achieving growth has been difficult for many years and a positive combination of financial and ESG metrics is now required to appease current shareholders and attract new shareholders,” MF says.

“Additionally, setting robust ESG targets and meeting them can lead to a lower cost of borrowing for gold miners through ESG-focused bonds.”

“As a result, gold mining companies, with favourable and improving key ESG metrics, together with high-return growth plans, are likely to be most attractive to investors.”


Gold Road hits guidance at Gruyere

Kicking off our Aussie gold reporting for the December quarter, Gold Road (ASX:GOR) has provided a commentary free look into the final quarter of the year at its Gruyere JV with South Africa’s Gold Fields.

Gruyere generated 74,201oz of gold on a 100% basis in the quarter, down from 83,635oz in December, but enough to comfortably settle within calendar year guidance of 300,000-340,000oz at 314,647oz, 157,324oz of which was attributable to Gold Road.

Gold Road sold 37,295oz at $2476/oz (Aussie), including 6480oz at $1735/oz to clear its remaining hedges, finishing the quarter debt free and with cash and equivalents of $80.7m after a $26m investment to maintain a 19.75% stake in WA’s next big gold thing De Grey Mining (ASX:DEG), rumoured thanks to its world class Hemi discovery to be on the radar of the world’s biggest miners.

Despite hitting guidance RBC analyst Alex Barkley said the update was a negative, with quarterly output falling 16% below the bank’s estimates and 14% below consensus.

“Gruyere has been targeting a 10Mtpa rate, which we expect from Q1 CY24. Q2 CY22 was quite strong at 9.6Mtpa before planned shuts in Q3 reduced this to 8.7Mtpa,” he said in a note to clients.

“This DecQ result falls to an even lower 8.4Mtpa. With no operational commentary it is unclear what has caused this throughput weakness, and if this could continue into future periods. We forecast 2.3Mt (9.2Mtpa) in Q1 CY23.

“The soft production result and uncertainty around the miss, particularly pertaining to weaker milling rates, should see the stock trade weaker today.”



Gold Road Resources (ASX:GOR) share price today: