Global gold mine output will remain depressed this year despite a major recovery in the precious metal prices, which are up almost 20% since January, a new report by BMI Research says.
As miners remain focused on cutting costs and divesting from non-core assets, the analysts forecast global gold production to increase slightly, from 98.4 million ounces (moz) in 2016 to 106 moz by 2020, averaging 1.8% growth.
In comparison, total bullion output increased by an annual average of 3.2% between 2011 and 2015.
The experts believe the worst is over and that prices bottomed in 2015, so they expect gold to edge higher over the coming quarters.
“We have turned more positive towards prices due to rising inflation pressures and our view that real rates will remain depressed in developed markets beyond 2016,” BMI said, raising its 2016 gold price forecast to $1,275 an ounce.
The analysts also said they expect profitability to return quickly, noting that the most cost-competitive cash costs among top producers are Barrick Gold ($596/oz), Yamana Gold (%596/oz) and Russia’s Polyrus Gold ($424/oz).
China’s appetite back
China, the world’s second largest gold consumer after India, is expected to ramp up acquisitions and investment in foreign gold mines, as the country’s demand growth far outpaces its own production.
BMI forecasts China’s gold mine production to edge slightly higher, from 16.2 moz in this year to 16.6 moz by 2020, averaging only 1.1% annual growth.
In comparison, the country averaged 7.5% annual gold production growth over the previous four-year period.
In 2015, China set up a new $16 billion mining fund to develop gold mining projects along the planned Silk Road infrastructure route. The fund’s largest initial shareholders are Shandong Gold Group (35%) and Shaanxi Gold Group (25%). Chinese gold miners, better capitalized than their Western counterparts , will be well-positioned to purchase foreign assets.
The report suggests that, while rising demand from Asian will drive the sector’s growth, new markets will emerge.
At the country level, gold production outperformers will be the DRC, Mongolia and Peru, thanks to low production costs and strong project pipelines, the report says.
In terms of volume, China and Australia will remain ahead, accounting for 16 .2% and 9.7% of global gold production respectively over the analysts’ forecast period to 2020.