THE COMPETITIVE
LANDSCAPE FOR GOLD DORÉ
Philip Newman, Director,
Metals Focus
Doré is the intermediate product produced by most of the world’s
primary gold mines, typically a gold-silver alloy containing less than 5% of
impurities. Globally, the environment for sourcing mined doré has become
increasingly competitive in recent years, as both gold recycling volumes have declined
and global refining capacity has continued to expand. The toughness of this
market is not unsurprising, when you consider that global refining capacity is
around two and a half times greater than annual mine supply. In this article we
look at the current trends in global gold mine production, the breakdown of
available doré supply globally, and our view on the outlook for the market in
the coming years.
Global gold mine supply rose by 2.4% in 2014, to 3,133t. However,
due to declines in recycling, consolidated supply from the two sectors was in
fact flat year-on-year, at around 4,300t, and some 6% lower than its 2012 peak.
Within this, gold mine production reached another all-time high as output
continued to benefit from the commissioning and ramp-up of projects green
lighted during the last bull market. On a country level, the growth in mine
supply in recent years has largely been driven by the continued rise of mine
supply in China and Russia. However, it has also been aided by an increasing
number of greenfield developments in emerging gold producing nations, such as
Kibali in the Democratic Republic of the Congo and Oyu Tolgoi in Monogolia, to
name two prominent examples from last year. As a result, we have continued to
see the growing geographic diversification of gold mine supply, and the
lessening dominance of the established gold producing countries, such as the US
and South Africa. The latter, which is estimated to have produced a third of
all the gold ever mined, has now seen its contribution to global mine supply
fall to around 5%. In contrast, at its peak in the late-1960s, the country was
responsible for producing some two-thirds of annual mine supply.
Looking at the current breakdown of global gold mine supply, what
emerges is that only a far smaller volume is potentially “on offer” to
international refineries. Out of the +3,100t of annual mine production, approximately
10% is recovered to base metal concentrate, predominantly as a by-product of
copper mining. Not lost, this metal is recovered as part of the copper refining
process, during the electrochemical production of copper cathode, with the gold,
as well as other precious metals, left within the anode slime residue. Similarly,
5% is recovered to concentrate at primary gold and silver mines. This
is typically treated in specialist processing facilities. Although
still ending up largely in doré form, 15% of global mined output is derived
from small scale, informal sources as mainly alluvial gold.
Consequently, this leaves around 70% of global gold production
remaining, or 2,200t of formal sector global doré production. However, not all
of this is available in the international market to gold refiners. A number of
countries, or provinces within these markets, have legislation restricting the
export of unprocessed doré, while others have historically been nations where
doré is in large part refined domestically, due to long standing agreements or
because the local mining companies themselves jointly own the incumbent
refinery, as is the case in South Africa.
In broad terms, these situations can be regarded as broadly captive to domestic
refiners.
The breakdown of global gold production

Looking at the main “captive markets”, these are shaded in grey
on the accompanying world map. The largest of these is China, which is also the
world's largest gold producing nation. The country produced 462t of gold mine
production in 2014, some 15% of the global total. However, a fifth of this is a
by-product of base metal mining. Including imports, Chinese companies processed
some 130t of gold from base metal concentrates last year. Elsewhere, it is a
legal requirement that gold produced in Ontario,
Canada’s largest gold producing province, is refined locally. Although not
strictly captive markets, gold doré produced in Australia and Russia (ranked
second and third respectively in the global production table last year) is in
the most part refined domestically, a result of the long established gold
refineries in these countries.
Captive doré markets in 2014

On the other side of the market, global refining capacity is
dominated by Switzerland. The country has no domestic mine production, while
Europe as a whole is a relatively minor producer. However,
gold's high value to weight ratio means that logistically, gold-rich
doré can be shipped large distances for processing at a relatively modest
cost. For example, the realisation cost for doré (which includes
transport and refining charges) is usually well
below 2% of a mine’s total cost. In comparison, the same cost
at concentrate producing copper-gold mines is typically a lot higher,
and often accounts for around one-third of a mine’s total cash cost.
Elsewhere, significant doré refining capacity tends to be located in or near major
gold procuring regions, such as South Africa, Western Australia, Russia, the
Middle East and North America. With the major exception of Brazil, South
America has relatively limited installed capacity. Instead, doré produced in
the region is in the most part shipped to North America or Europe for
processing.
If this did not pose enough challenges, the global doré market
is expected to become more competitive over the next few years. Firstly, following
a number of years of growing global doré supply, production is expected to
enter a period of secular decline in the next couple of years, as the project
pipeline is depleted (and not replaced), while low gold prices also force the
closure of some high cost operations. Secondly, global refining capacity has continued
to expand, with significant new plants and expansions being commissioned, for
example, in India and in the Middle East. Meanwhile, a number of smaller gold
producing nations are pushing to develop local refining capacity. For example,
Kaloti Precious Metals recently opened a 60t/yr facility in South America, in
partnership with the Suriname government, while the Ghanian government is
currently firming up plans to establish a 100t/yr operation in Africa’s second
largest gold producer. Furthermore, Kaloti is building a new facility in Dubai,
which will lift its capacity in the region from 300t, to 1,400t per annum.
By Metals Focus, leading independent precious metals consultancy;
www.metalsfocus.com
Disclaimer: Views are personal and not the views of the
publisher.