Mine production
Third quarter mine production is estimated at 949t, 1% below the strongest ever third quarter mine production seen in Q3’18. Q3’22 mine production was 6% higher q-o-q due to a seasonal increase in output from high latitude alluvial operations, together with more normal operations from mines in many countries that had suffered earlier production interruptions. And following modest downward revisions to the last two quarters, y-t-d production of 2,686t was slightly below the record set in 2018, when mine production reached 2,705t for the first nine months of that year.
Growth in mine supply was seen in all regions except in the Commonwealth of Independent States (CIS) region.1 Central and South America had the biggest increase, up 10t y-o-y, followed by Asia, which increased by 9t y-o-y. Aside from the 12t y-o-y decline seen in CIS, all other regions saw smaller gains.
Mauritania saw production increase nearly eight-fold y-o-y after Tasiast, the dominant gold mine, operated at normal production levels compared to almost no production in Q3’21 following a fire in the processing plant. In Colombia, mine production jumped 56% y-o-y, as it recovered from lower production in 2021 resulting from planned maintenance at Sergovia and weather-affected artisanal and small-scale production. Mine production in Ghana increased 18% y-o-y due to rising grades at the Ahafo mine and the ongoing ramp-up of Obuasi; while China’s 12% y-o-y increase in mine production was a consequence of operations in Shandong province returning to normal after safety stoppages hit production last year.
Several countries also noted declines in output during the quarter. Mongolia saw a 62% decline y-o-y due to significant declines in gold grades at the giant Oyu Tolgoi copper-gold mine. Two production suspensions in Turkey – Oksut in March after mercury was detected in the gold room and Copler in June following a cyanide spill – saw mine production 24% lower y-o-y. Burkina Faso production fell 13% y-o-y after operations were suspended at Taparko on security concerns, together with lower grades at other mines. And the 11% y-o-y decline in Russia was due to a combination of lower grades at several major mines, including Olimpiada and Blagodatnoye, and lower production at other operations due to rising costs, shortages of equipment and reduced financing due to sanctions.
Gold mining costs continued to increase in Q2’22, the latest available data. The average All-In Sustaining Cost (AISC) hit US$1,289/oz in the second quarter, another record high and up 18% y-o-y. General inflation increased mining costs in all areas with fuel, energy, labour and consumables all up y-o-y. Also, some lower grade mines have (re)started after the increase in the gold price in recent years, contributing to higher average AISC for the industry. With higher costs and the lower gold price, AISC margins eroded further during the quarter and – for the first time since 2019 – turned negative for the 90th percentile of gold mines.
A very strong Q4 will be needed if the FY total is to exceed the previous 2018 record (3,665t), made perhaps more difficult by H1 revisions and other production interruptions. Please see the Outlook section for more details.
Net producer hedging
It is estimated that gold miners reduced their aggregate hedged position by 10t in Q3’22. Initial estimates (subject to revisions once most companies have released quarterly reports) suggest a 10t decline in the global delta-adjusted hedge book in Q3’21. After a smaller than expected contraction of the hedge book of 1t in the second quarter, the y-t-d decline is estimated at less than 1t.
A slightly lower average quarterly gold price, down 1% q-o-q, is not expected to have prompted major new hedging in Q3 as producers appear to prefer to keep production exposed to the spot gold price. The only additions anticipated are from companies needing to add new positions due to debt finance requirements.
Recycled gold
Recycling fell for the second successive quarter in Q3’22, totalling 276t (-6% y-o-y and -5% q-o-q). Year-to-date, recycled gold supply is up by 3% on the same period of 2021, largely due to strength seen at the start of 2022 following the Russian invasion of Ukraine when the international gold price rose to over US$2,000/oz. The shuttering of some markets in 2021 also reduced recycling activities, demonstrating that base effects played a role in the y-t-d increase too.
At first glance the y-o-y and q-o-q fall in recycled gold fits with the lower gold price, which declined by 3% y-o-y and 8% q-o-q, but considerable regional differences are worth highlighting. The strong US dollar resulted in higher local currency gold prices in many counties, especially Japan, the EU and the UK, all of which saw higher recycling flows. In contrast, the Middle East and South Asia saw recycling volumes fall, both y-o-y and q-o-q.
Despite the pickup in inflation in many countries, signs of consumer distress are limited. In markets where this is evident, various factors have encouraged consumers to hold on to their gold if they can; for example the negative real interest savings rates in Turkey, or limited investment alternatives in Iran and Iraq.
In the US, recycling flows were essentially flat, with refineries reporting steady activities and no signs of trade destocking. But pawnbrokers, who generally serve lower income categories, reported stronger activity in the third quarter and this may be a prelude to more broad increases in scrap supply if the US economy tips into recession.
The supply of recycled gold in China was up q-o-q but down compared to Q3'21 as COVID-19 lockdowns in the most recent quarter limited market access for sellers. There were, however, fewer restrictions in Q3'22 compared to earlier this year, which helps to explain the q-o-q increase.
We continue to monitor recycling gold supply closely. Pressures from a weakening global economy, the strong US dollar and the rising cost of living are affecting many markets. These factors, together with the trajectory of the gold price, will be important drivers of recycling over the balance of 2022 and beyond.
