Amid a booming housing market (home prices +14.4% YoY), and busting economy (PMI 44.2 from 55.1 2014 peak), Australia's Gold output in 2014 surged 4% to its highest since 2003. As Mining.com reports, [7] the world's no.2 gold-producing nation (after China) has been forced to increase the grade of ore they were targeting and push their processing plants even harder, and mining consultants Surbiton Associates warns "it's not all good news."
Housing is booming out of control...
The bottom line is that Australia's housing boom is racing away like an out-of-control freight train. So-called "macroprudential" constraints on bank lending, which place a soft limit on credit growth at four times current wages growth, have had zero impact to date.
In July 2014 Glenn Stevens warned in a speech that it "would in my opinion be good, for a range of reasons" if the "slower pace of growth in dwelling prices" observed in May and June, which proved to be a temporary blip, "did persist for a while". Stevens said he hoped for "unremarkable performance on [house] prices" for the "next couple of years". I wrote that "he must be a preternaturally optimistic character".
[8]
Since Stevens' July 2014 warning, Sydney property prices have inflated at a 14.4 per cent annualised pace, and 10.5 per cent in Melbourne. National price growth has not been far behind at 9.3 per cent.
But the economy is ugly...
[9]
And now gold output is surging, but as Mining.com reports, [10] that's not necessarily a positive signal...
According to Sandra Close, director of mining consultancy firm Surbiton and Associates, lower prices forced Australian gold miners to increase the grade of ore they were targeting and push their processing plants even harder.
However, Close warned there was a downside to producing gold in this manner.
"Superficially, the figures give the impression of a healthy and vibrant industry but you need to dig a little deeper to get the whole picture. It’s not all good news," Close said.
"Higher grades and greater throughput certainly lift production but lower grade material becomes uneconomic, so mine lives are shortened."
[11]
Close said the high level of unemployment in the gold sector and the “waste of trained people” was also cause for concern, with the proposed gold royalty hike in WA set to make matters worse.
A final WA state government report on royalties is expected to be released soon. The current royalty rate is 2.5 per cent, with any increase set to cause an industry-wide backlash.
Gold miners have lobbied against royalty hikes, saying that there are many small producers that could not afford additional expense on marginal profit ratios.
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