Gold earnings fall 23%; price likely to recover next year – Gold Board

Dec 21, 2014 News

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As miners continue to grapple with the fallouts from gold prices, Government has reported a more than 20 percent drop in exports and revenues earned.

The situation now has miners thinking hard on postponing plans for investments with a marked decline in production activities.
The Guyana Gold Board (GGB) yesterday, confirming a significant shortfall, said that it has recorded lower levels of gold declaration for the various periods of this year as compared to last year.
“The combined statistics of all mining operations as well as gold dealers’ data for 2014 have indicated that the expected levels of gold output for 2014 will not be met as was originally set at the beginning of the year,” GGB said.
The major reason for this is as a result of the fall in the global price for the yellow metal on the world economy during this year.
Total declaration as at yesterday indicated a 22.61% drop when compared to 2013.
For GGB, gold purchased by its offices recorded a 41.24% reduction when compared to the corresponding period last year.
While exports by private dealers increased by 10.16%, those of the Gold Board fell by 40.26%. “Thus, the overall quantity of gold exported for the two periods being compared are down by 22.73%. Moreover, the value of gold exported by dealers has increased by 10.86%, whilst the revenue garnered by the GGB has decreased by 43.48% during the comparative periods. The total revenue for the two comparative time periods has fallen by 23.45%.”
According to the Gold Board, in 2013 it was forecast that gold might fall to US$1,050 an ounce before the downturn is over. Gold peaked at US$1900 an ounce before falling to US$1200 an ounce last year.
The price of the yellow metal duly fell by 25 per cent in 2013, when compared to its highest level in 2011 and has made little headway in 2014, despite lots of geo-political uncertainty, the Board said. It stood at $1,198 an ounce on Friday evening.
Worry
“The sentiment is bearish and miners are being forced to curtail production or shelve investment plans.”
GGB noted yesterday that gold stocks have suffered a miserable few years, becoming a laughing stock even among contrarians.  “However, this despised sector’s seemingly-endless downward spiral has left gold stocks vastly undervalued relative to gold, which drives their profits.
The fundamentally-absurd disconnect between gold-stock price levels and gold can’t last.”
It is likely that the price may be ready to rise by next year. “And it sure looks ready to end, making 2015 the year gold stocks shine again.”
In the mining industry, the price of gold is the dominant driver of corporate profits by far.  “Mining costs are largely determined by the particular deposit being mined, and are largely fixed when any mine is designed and constructed.  So gold miners’ profits are almost totally dependent on the price of gold.  The higher it happens to be, the larger their margins grow since their costs generally don’t change much.”
According to the GGB, the Ministry of Natural Resources and the Environment along with its supervisory and regulatory authorities; Guyana Geology and Mines Commission and Guyana Gold Board, is continuously working with all stakeholders of the industry, in particular the Guyana Gold and Diamond Miners Association, to ensure the sustainability of the sector.
Govt. Interventions
Already, a number of interventions have been made. These include duty free concessions for All Terrain Vehicles (ATVs), excavators, bulldozers and other machinery, double-cab pickups, spares and equipment.
A fuel licence has also been granted to the miners’ association and a mercury free mining development fund introduced.  Miners also have access to foreign currency with Government taking the lead on the development of infrastructure in some of the key mining areas.
Additionally, GGB said, there are new areas available for mining along with a reduction in the royalty and property rental rates.
Training is being accessed through the Guyana Mining School with a collaborative approach from the government side to speed up the processing of work permits. There has also been an increase in security presence and patrols in the interior along with miners being granted firearm licences.
GGB was upbeat yesterday, noting that while the year-on-year decline may suggest a weak market, such comparisons are still heavily influenced by the events of last year.
“Longer term analysis shows a market in good health. Year-to-date volumes continue to extend the broad uptrend from the low seen in 2009. The quarterly volatility in the US dollar gold price was among the lowest levels seen over the past two decades, both a cause and effect of the benign demand environment.
The lack of a clear price signal, as well as continuing to digest last year’s demand surge, caused investors to hold back from buying gold.”
The ongoing economic and geopolitical instability encouraged central banks to continue to seek the protection and diversification of gold.  “Thus, the broad themes surrounding gold supply during the first half of the year continued to play out in second half.”
The gold situation is being looked on with worry especially as it had served to boost the economy in recent years, becoming the top earner for the economy.
The gold rush had attracted workers in droves for the high-paying jobs. This year, however, the reduced production and exports has pushed back agriculture to the top earner position.
The gold industry situation is more likely now to see Guyana downgrading its growth target from the adjusted 4.5 percent that it announced in its mid-year report.

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