Gold mining is a laborious business. There is not a huge amount of the metal around, which helps explain why an ounce of it is currently worth just under £1,300.
It’s also notoriously difficult to extract. Miners have to blast, crush and sift through thousands of tonnes of rock for every scrap of this precious metal.
But gold mining can be hugely profitable too, and more of it is now being dug out of the ground Down Under at the moment than anywhere else on earth.
A rich seam: Australia unearthed 157 tons of gold in the first half of the year, pipping China by four tonnes to become the world’s biggest producer of for the first time
Having played second fiddle to China for the last decade, Australia has become the world’s biggest producer of gold for the first time.
It unearthed 157 tons in the first half of the year, pipping China by four tonnes, according a report by analysts Surbiton Associates.
This haul is worth more than £7billion, based on the current gold price of just under US$1,790, or £1,290, an ounce.
Australia’s rise to the number one spot comes on the back of a bumper period for its gold mining industry, which unearthed a record 328 tons two years ago.
China’s state-run mining behemoths are not renowned for their transparency.
So it is unclear exactly why production in the world’s most populous nation has fallen behind of late.
Analysts at Surbiton have suggested it may have something to do with some mines in China being temporarily shut down to investigate work accidents and deaths.
Other industry experts think this is unlikely. Whatever the reason, the changing of the guard at the top of the gold medal table reinforces Australia’s status as one of the dominant forces in mining.
Many of the world’s biggest gold extraction sites are based in Western Australia, which is already riding high on a mining boom that has been fuelled by record iron ore prices.
Gold Prices hit a record high of more than $2,053 a troy ounce in August last year. They have fallen back again as the rollout of vaccines fuelled optimism, and stock markets recovered
The biggest in the state – and the second biggest in the country – is the Boddington Gold Mine, 80 miles south-east of Perth, owned by Colorado-based Newmont, the world’s largest gold miner.
A few places down the pecking order is the Mungari site, which is almost 400 miles east of Perth on the edge of the Kalgoorlie gold fields.
It is one of five across the country run by Evolution Mining, which has risen rapidly through the ranks to become one of Australia’s biggest gold mining companies.
It is highly profitable, with around 600 workers. But a huge amount of work goes into it. Around two million tons of rock is blasted out of the ground and transported in trucks to the local mill every year.
This equates to around 6,000 tons a day, which typically generates less than 10kg of gold, roughly the weight of a koala bear.
This ore is broken up into gravel-size pieces by large machines known as crushers, before being ground to a fine powder in separate machines.
Water, chemicals and electric currents are used to separate the gold, which is then smelted and turned into a low purity gold bar – called a ‘dore’ bar.
These are then sent to a refinery, to be turned into a 99.9 per cent pure gold bar, which can be traded on the market.
Evolution’s executive chairman Jake Klein said: ‘Australia is benefiting from the very high gold price.
‘This has created a lot of momentum in the sector and a lot of production.’
Expansion plans: Evolution Mining’s executive chairman Jake Klein
But higher production is not necessarily a good thing, he said. Miners tend to dig up more gold when prices are high, even if that means blasting, transporting and milling more rock.
‘That’s been the problem with the gold sector and why we’ve always been a boom and bust industry,’ said Klein.
‘It is one of investors’ biggest frustrations – that miners will often dig up more dirt to produce more gold, but at higher cost.
‘The focus should always be on doing it profitably.’
Despite these challenges, gold miners have struck it rich during the pandemic.
Gold has traditionally been seen by investors as a haven during times of economic turmoil, as well as a hedge against inflation.
Prices hit a record high of more than $2,053 (£1,483) a troy ounce in August last year. They have fallen back again as the rollout of vaccines has fuelled optimism, and stock markets have recovered.
Analysts have predicted prices could have further to fall. But, despite the ups and downs, it has proved a good long-term bet, beating stock markets.
Analysis by broker AJ Bell shows gold prices have soared 517 per cent since the turn of the century, while the S&P 500 index in the US has jumped 204 per cent, and the FTSE All World Index of more than 3,000 global stocks has risen just 128 per cent.
Russ Mould, investment director at AJ Bell, said: ‘Gold arouses strong emotions in investors. Some view it as an inert, useless lump of metal that generates no yield and therefore argue it is inherently worthless, barring perhaps some minor industrial uses.
‘Some see it as money, a role it has fulfilled since time immemorial, and therefore a true store of long-term value, especially during times of government and central bank profligacy.’
Mould said investors wanting to bet on gold could invest directly in mining companies in the UK or overseas.
UK-listed options range from FTSE 100 firm Polymetal, which has a market capitalisation of £6.5billion, all the way down to AIM-quoted Katoro Gold, which is valued at around £3.4million.
But Mould warned this option is particularly high-risk as shares can rise very sharply as the gold price increases and ‘drop like a rock’ when it falls.
An alternative would be to plump for cheaper tracker funds, which either invest in physical gold or in futures contracts and derivatives.
ETFS Physical Gold and Ishares Physical Gold are two tracker funds which own the metal, while ETFS Gold ETC uses derivatives.
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