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Metals Focus: 2020 global gold output 'significantly impacted' by pandemic

April 2, 2020

The global COVID-19 pandemic will mean less 2020 gold-mine output than previously expected, but higher prices may mean higher margins for producers, Metals Focus said. As of the consultancy’s report issued earlier this week, countries that had instituted lockdown policies to combat the spread of the virus included South Africa, Peru, Argentina and Quebec. Now, Mexico is also halting all non-essential business until April 30, prompting another round of temporary mine closures. In addition, companies have curtailed some operations on their own.

Metals Focus pointed out that so far, mining in Australia, the U.S. and Russia is still normal. However, the situation around the world is continually changing and could result in more suspensions.

 “Quantifying the impact on global mine supply at this stage is therefore extremely challenging,” Metals Focus said. “At present, we expect 2020 gold production to be significantly impacted and lower than the 3,541t [metric tons] we were forecasting at the start of the year.There have been other implications for the industry as well, such as increasing difficulties for junior gold miners to obtain financing, Metals Focus said.“Global markets have deteriorated since [early March], which will impact projects under feasibility study, prefeasibility study and scoping, which were projected to contribute 9.2% of global gold supply by 2024,” Metals Focus said.

 Meanwhile, despite recent volatility in prices, gold is far more expensive than most of last year. As of “Current prices, above the 2019 average of $1,393, should push margins higher this year,” Metals Focus said. “Average all-in sustaining margins rose by 24% y/y [year-on-year] in 2019 to $458/oz as a result of a 10% y/y increase in the gold price. This margin growth was driven by the strong gold price in the last two quarters of 2019, pushing AISC margins to $498/oz and $550/oz in Q3 and Q4, respectively.”Meanwhile, with the continuing emphasis of producers on cost discipline, the average all-in sustaining cost of primary gold mines is expected to fall to an average of $907 an ounce this year, Metals Focus said.“These efforts will be helped by the strong U.S. dollar while further downward pressure on costs will come from the recent fall in oil prices feeding through to diesel costs,” the consultancy said.“However, there will be upward pressure on costs as a result of COVID-19 related disruption to operations. Mines that are temporarily closed will incur higher costs while ramping up/down and lower base metal prices will lead to a reduction in by-product credits for gold mines producing these metals. Rising y/y gold prices may also incentivize higher-cost production to come online and miners to increase capital expenditure, pushing AISC up.”