Global gold mine supply contracted by almost 3% in 2008 resulting in production levels falling to a 12-year low. Indonesia output decreased by 35%, South Africa, 14% and Australia 13%, according to Gold Survey 2009 released by GFMS Ltd.

In Indonesia production fall was largely associated with mine sequencing leading to the extraction of low gold grade ores at the Grasberg. In South Africa, safety related stoppages, and lost time relating to a force majeure announced by Eskom, the state electricity provider in January 2008, were both accountable for a large measure of the shortfall.

Significant production improvements were comparatively limited with Russia and Peru leading the field, increasing by 11% and 6%, with both countries’ output benefiting from the roll-out of a major mining project, specifically the Kupol mine and the Yanacocha plant upgrade respectively.

On an annualised basis producers’ total cash costs continued to expand last year, with an average increase of almost 20% against 2007. However, GFMS noted that cost benefits were already being realised in the December quarter, with the price declines noted for many consumables, coupled with depreciating currencies in several major mining countries, leading to an average decline of 9% quarter-on-quarter in US dollar terms.

Producers continued to eliminate gold hedges at elevated levels last year, with producer de-hedging, a source of physical gold demand, calculated at 358 tonnes by GFMS, serving to constrain net supply from the mining industry. Most of this activity came two-thirds of global de-hedging last year. Klapwijk stated that “with outstanding gold hedges amounting to less than 500 tonnes at the end of 2008, the scope for producer de-hedging to provide meaningful demand is becoming increasingly limited.”

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