PERTH (miningweekly.com) – Australian gold production is forecast to grow by 6% year-on-year in 2019 and a further 3% in 2020, to reach 10.9-million ounces, researcher Fitch Solutions has reported.

In its outlook for the Australian gold sector, Fitch Solutions noted that Australian gold production in the 2019 financial year reached a record 10.3-million ounces, with 2.6-million ounces delivered in the June quarter alone.

“A solid project pipeline will buoy Australian gold production in the coming years which we expect to average 2.3% annual growth from 2020 to 2028,” the report read.

In May this year, gold miner AngloGold Ashanti green-lit the Boston Shaker underground project at its Tropicana joint venture (JV) with Independence Group, which will see Tropicana reach yearly gold production of 480 000 oz for the next five years.

Furthermore, autonomous drilling trials at Tropicana could boost production efficiency by reducing the number of necessary operators and drills as early as 2020.

In June this year, South Africa-based Gold Fields also poured the first gold at its Gruyere JV with Gold Road Resources which is expected to produce approximately 250 000 oz/y when operating at full capacity, further supporting our long term growth forecast.

Fitch Solutions has meanwhile said that upward momentum in gold prices, supported by a shift in interest rate expectations and policy-induced volatility, will also incentivise project investment in the Australian gold sector.

“We at Fitch Solutions forecast gold prices to average $1 375/oz for 2019. High gold prices translate into an Australian gold output valued at nearly $23-billion for the 2019 financial year, leading to high returns for miners.

“Gold prices will be sustained in the coming years by the demand for safe haven assets as geopolitical tensions ensue with the US-China trade dispute, Brexit negotiations and US-Iran military confrontation. Sustained gold prices will encourage new investment and protect current projects underway, as evidenced by Northern Star Resources’ A$76-million exploration budget and A$116-million capital budget for 2020.”

However, the report noted that the proposed 2.75% gold royalty in Victoria could increase costs for miners, posing some downside risks to the company’s production outlook.

In May 2019, the Victorian government proposed to impose a 2.75% mining royalty on the state's gold sector that would negatively impact the region's already lacklustre mining competitiveness.

Kirkland Lake's Fosterville mine is Victoria's top gold producer following a significant ramp-up initiative, which enabled the company to raise 2019 guidance from between 390 000 oz and 430 00 oz to between 550 000 oz and 610 000 oz in February of this year.

“The largely unexpected royalty, effective January 2020, would raise costs across the sector, reducing exploration investment and, in turn, risking both the longevity of operating mines and the feasibility of marginal mines. For instance, the Fosterville mine has remaining reserves lasting up to five years. The inability to fund exploration activities essential to extend its mine life would result in a sizeable loss for future Australian gold production,” Fitch Solutions said.

“Additionally, a lack of exploration projects due to high costs of developing greenfield assets could potentially hamper the sector's long term growth.”

The Minerals Council of Australia on Wednesday called for the Victorian government to reconsider the gold royalty, warning that it could force the closure of gold mines in the region.

Instead, the industry body said that the state government should consider subtracting exploration costs from the royalty to curtail adverse effects.

“Nonetheless, if Victorian gold production experiences substantial cuts for which other Australian states are unable to compensate, we would revise our positive production outlook,” Fitch Solutions said.