PERTH (miningweekly.com) – The prices of some of Australia’s largest export commodities have fallen dramatically in the last year, dumping the country’s iron-ore and coal sectors into unprecedented doldrums. On the west coast of Australia, the iron-ore sector has been subjected to infighting, with Australian-owned producers blaming majors for flooding the markets and toppling the once-high price for Pilbara iron.

On the east coast, miners are cutting costs in an effort to combat the declining prices.

In contrast, Australia’s gold price has seen a measured revival in recent times, allowing Australian producers a bit of breathing space.

“The last six to nine months has seen something of a renaissance in the Australian dollar gold market, and obviously this has had an impact on the local producing community,” says the Commonwealth Bank of Australia’s global head of natural resources, Grant Willis.

Willis notes that the surge in the Australian dollar gold price is due to a decline against the American greenback, which translates into the gold price of around A$1 500/oz.

“This price movement has breathed new life back into the Australian dollar gold market and, frankly, has made it a little bit more of an interesting place for producers, investors and shareholders alike.”

Australia’s gold production has remained fairly steady, despite the upward trend in prices. The Department of Industry and Science has estimated that Australian gold production will reach 274 t during 2014/15, increasing by an annual average of 1.3% to 293 t by 2019/20.

Gold exports during 2014/15 will increase by 2% over the previous year’s figures, to 285 t, with values forecast to increase by 4.2% to A$13.6-billion during the same period, supported by the higher volumes and the depreciating Australian dollar.

The Department of Industry and Science also estimates that gold exports to 2019/20 will increase by an annual average of 1%, to a total of 300 t, while export values during the same time will increase at an average annual rate of 3%, to A$15.8-billion, driven by the higher export volumes, prices and the depreciating Australian dollar.

Gold commentator, author of The Great Gold Renaissance and director of mining advisory Surbiton Associates Dr Sandra Close says that, despite the significant rise in the gold price in both US and Australian dollar terms since the early 2000s, there have been very few new discoveries in Australia.

“Production has been based on known deposits, redevelopment of known deposits at depth and brownfield discoveries. Australia still remains prospective for gold but many of the more obvious surface deposits have already been found, so, ultimately, exploration will need to be extended under cover and will need to make use of new techniques as they are developed,” Close says.

“This will require higher expenditure on exploration and, at the moment, there is little appetite for such activity and little availability of funds. Also, it must be remembered that Australia already has the largest resources/reserves of gold in the world. However, the bulk of these is not in primary gold deposits, which currently provide most of Australia’s production but is within copper/gold or iron-ore-copper-gold deposits and will only be mined over a long period, as determined by the predominant commodity in such deposits.”

The Department of Industry and Science has noted that exploration expenditure in the gold sector fell by 32% between 2013 and 2014, totalling only A$377.3-million for the year.

While exploration activity in the Australian gold sector has remained stagnant, mergers and acquisitions (M&A) activity in the sector has been flourishing.

Willis notes that smaller players in the gold sector are currently most active in the M&A sector, as funding becomes more readily available to the junior and midcap producers, which he says is an indication to the health of the industry.

Gold miner Evolution Mining recently announced a transaction with private gold miner La Mancha to acquire all of that company’s Australian operations, adding an additional 130 000 oz to 160 000 oz in production to Evolution’s portfolio, and taking its annual output to between 530 000 oz/y and 600 000 oz/y.

Following the transaction, Evolution will hold six operating assets, holding a resource estimate of some 3.4-million ounces and a mineral resource of some 8.4-million ounces over 5 289 km².

Evolution’s move came after fellow-listed gold miner Northern Star Resources reported enormous success from a spate of acquisitions done in 2014. In February that year, the miner settled the acquisition of the Plutonic project, while, in March, it bedded down the Kundana and Kanowna Bell projects. The acquisition of the Jundee project was settled in July, taking the Northern Star’s total production to between 550 000 oz/y and 600 000 oz/y.

Northern Star also signed a A$20-million deal with Tanami Gold in April to joint-venture on the Central Tanami gold project, in the Northern Territory.

At the start of 2015, Western Australia-focused Doray Minerals acquired fellow-listed Mutiny Gold in a bid to get its hands on the Deflector copper/gold project in the hope of bringing the project into production by 2016.

By May, the company had approved the development of Deflector, which would effectively double Doray’s production to about 160 000 oz/y gold equivalent. The project would likely deliver about 63 000 oz of gold, 2 662 t of copper and 60 000 oz of silver.

Willis notes that the creation of more multi-mine companies in the Australian playing field will help to even out the gulf between the smaller miners and Australia’s largest gold player, Newcrest Mining.

“There is absolutely space for players like Evolution and Northern Star to grow into the midtier space and take a more powerful industry position than has previously been the case. And this will be good for the industry, because investors will be given more of a choice, especially the mainstream investors who want to play at the single-asset end of town.”

Meanwhile, as the Australian gold price increased, a slew of new projects have also been given the go-ahead for development.

Miner Ramelius Resources in May gave life to the A$1.5-million development of the Kathleen Valley gold project, in Western Australia, which would be in operation by July 1.

The miner is also undertaking work at the proposed Vivien gold mine, in the hope of starting an underground mine portal during the June quarter of this year. A 2014 feasibility study into the Vivien project estimated that a capital expenditure of A$20-million would be required to allow Vivien to deliver about 109 000 oz of gold over a mine life of 30 months.

The Vivien project, along with the proposed Kathleen Valley project and Ramelius’s producing Mt Magnet operation, is expected to increase the gold miner’s yearly production to about 130 000 oz/y by 2016.

Miner Metals X is also looking to develop its Central Murchison project, where a revised feasibility study recently revealed that the project could support a 200 000 oz/y production over a mine life of some 13 years.

Metals X is hoping to start production at Central Murchison by middle 2015.

“It’s great to see activity at [the smaller] end of the market, and clearly that has been a part of the market hurt the most by the decrepit prices of recent years, and investor interest had all but dried up for some of those names,” says Willis.

“So, to see these guys get equity interest and raise the equity and, in turn, go to the bank market for project funding is a great sign of the health of the industry, particularly in Western Australia, which has been the centre of the small capped activity.”

While equity raising has been assisted with the recent upswing in the Australian dollar price for gold, investors into gold stocks have remained hesitant to re-enter the market.

“There seems little evidence that investors are returning to gold stocks. The market enthusiasm for resources stocks in general has waned with the decline in iron-ore and other commodity prices and this has extended to the gold sector too,” Surbiton’s Close tells Mining Weekly.

“While gold production has been little affected by market sentiment, the gold explorers have really felt the pinch, with funds for exploration or for more advanced projects hard to come by. Rather, the current market focus is on non- resources stocks that provide a reasonable return and this has been exacerbated by the Reserve Bank’s continued policy of reducing interest rates, with some decline in the exchange rate.”

Willis agrees, saying that previous investors into the iron-ore and coal markets are unlikely to turn to gold stocks in order to regain losses.

“I think that the specialist investment community, those that invest in bulk commodity or hard rock commodity, is a different class of investor,” he says.

“Gold will retain its somewhat unique place in the investment community with very specialist and high-profile funds that act as the guidance rod in terms of sentiment, and there is obviously a very strong retail base as well.”

Close adds that, to an extent, gold still remains a safe haven investment, as it is still considered a store of wealth, as has been the case historically.

“While the conventional portfolio use of gold as a countercyclic investment has been diminished, it has not completely disappeared. Most of the central banks that hold gold are retaining their holdings, while China and India have increased their central bank holdings in the last few years. Also, while holdings in gold exchange traded funds have reduced, they are still substantial,” she said.

Close notes that, while it is not as reactive as it once was, the gold price still usually rises with uncertainty in economic and financial markets and when conflict increases in various parts of the world.

Willis is, meanwhile, quietly confident that the Australian dollar gold price will remain steady during the next 6 to 12 months, given that the Australian dollar is expected to further decline against its US counterpart.