Australian Gold Production Drops in 2011

Recent data from the consulting firm Surbiton Associates in regard to Australian gold production for the year 2011 have failed to meet market expectations for average production. Last year Australia defended its position as second largest gold producing country after China, but in comparison with 2010 Australian gold production dropped by two tonnes. In 2011 Australian mining companies produced a total of 264 tonnes (8.5 million troy ounces) of gold. But commodity markets were expecting data to show an increase in gold production. Nevertheless, with rising gold prices at the global markets, despite this production decline most Australian mining companies have increased their profits.

In 1997/98 Australian gold production reached a peak of 318 tonnes – a record it has not been able to match in subsequent years. Production declined by 6% year-on-year in Q4; though in comparison with Q3, gold production dropped by just 1%. Nevertheless, Australian mining companies have continued to make great profits with gains in the gold price. At a current gold price of $1,710 per troy ounce last year's total production of 264 tonnes amounts to US$13.5 billion. Last year China produced a total of 300 tonnes. America is the third largest producer.

Last year major mining companies announced that they would concentrate on extracting gold at greater depths. This might be one of the possible factors affecting Australian production data. Gains in the gold price relative to input costs have meant that extracting gold at greater depths has become more lucrative. In 2011 the Super Pit mine, operated by Barrick Gold and Newmont Mining, produced approximately 796,000 troy ounces of gold, while Newmont's Boddington mine produced a total of 742,000 troy ounces of gold. The Telfer mine, operated by Newcrest Mining, followed third with 554,779 troy ounces. Today Australia's ASX 200 fell by 0.24%, with losses in energy and mining stocks.

The liquidity flood triggered by central banks should continue having a positive effect on gold prices. This week international financial markets will once again focus their attention on Greece. Private lenders to Greece, which is on the verge of bankruptcy, are being requested to agree to the bond swap offered by the Greek government before March 12. According to the rules laid out in the latest bailout that was agreed last month, 95% of bond holders are required to agree. Should this not be the case, Greece will not receive its second bailout package from the European Union and the International Monetary Fund. The Greek government warned its private bond investors that, if needed, it would force them to accept the bond swap. Major rating agencies such as Standard & Poor's have already announced that they would treat this as a selective default. This could trigger a disorderly default and new turbulences at the capital markets. How the gold price would react to such developments remains to be seen. Some analysts predict that in the case of a Greek default many will look to gold as a safe haven, while the other half expects gold prices to fall as traders sell assets in order to raise cash.