COMMODITY SPOTLIGHT

SETTING A GOLD STANDARD IN THE GLOBAL ECONOMY

AUSTRALIAN MINING TALKS WITH THE PERTH MINT TO FIND OUT WHY AUSTRALIA’S GOLD INDUSTRY HAS MAINTAINED ITS IMPORTANCE TO THE NATIONAL ECONOMY OVER THE PAST TWO YEARS.

Throughout the COVID-19 pandemic there has been little in terms of stability throughout the world.

However, one thing has remained relatively constant despite the growing uncertainty that has gripped economies – gold.

While the price of other commodities has fluctuated depending on factors including market demand and political power plays, gold has bucked global trends to not only survive during the ongoing pandemic, but also thrive.

Perth Mint listed products and investment research manager Jordan Eliseo says gold has been one of the safest commodities of the past 24 months.

“Last year, gold had one of its strongest years on record, rising by approximately 25 per cent in US dollar terms, as the COVID-19 pandemic, and the associated fiscal and monetary response saw real bond yields decline, and investors gravitate to bullion,” he says.

“This was best evidenced through inflows into gold exchange-traded funds, including Perth Mint gold, which saw record inflows at the

FROM JANUARY TO JUNE, AUSTRALIA PRODUCED 157 TONNES OF GOLD. height of the pandemic.

“This year, gold prices have been more subdued, though the precious metal can continue to play an important role in investor portfolios, especially given the rising inflationary risks evident in the market.”

In September, The Perth Mint reported an underlying pre-tax profit of $56 million on turnover of $26.35 billion for the 2020-21 financial year.

This is a record in the mint’s 122year history and cements the East Perth institution as one of Western Australia’s largest exporters of gold and silver.

Eliseo says the gold industry is responsible for providing more than 30,000 jobs to Australians, as well as supporting more than 200,000 indirect jobs.

“It’s also an important source of export revenue (more than $25 billion per annum), and generates billions in royalties, which governments use to fund infrastructure and community services,” he says.

“In this way, the gold industry helps support the economy and the prosperity of Australian citizens at both a state and nationwide level.”

The Perth Mint delivered a further $41 million in taxes and dividends to the state government in the 2020-21 financial year, taking the total paid to Western Australians to more than $230 million over the past decade.

The mint refines the vast bulk of newly mined gold from across Australia, transforming it into cast bullion bars and minted precious metal products for sale to investors worldwide.

According to Eliseo, multiple factors impact the price of gold, from inflation and interest rates, movements in currency markets, stock market strength or weakness, central bank activity, as well as geopolitical developments.

“As a general rule, whenever investors are wary of risk in the markets, they will turn to gold, given its safe haven status, and this typically results in higher prices,” he says.

“The last 20 years have demonstrated this clearly, with a range of high-profile events (The NASDAQ Crash, September 11, the Global Financial Crisis and the COVID-19 pandemic) all contributing to the rise in the price of gold from below $US300 ($412) to more than $US1700 per troy ounce.”

According to Surbiton Associates, Australian gold production during the first half of 2021 was four tonnes more than China’s figures for the same period.

From January to June, Australia produced 157 tonnes of gold, with 74 tonnes in the March quarter and 83 tonnes in the June quarter. China produced 153 tonnes of gold for the same period.

Eliseo says Australia is in a blessed position when it comes to its gold industry.

“We have typically been the second or third largest producer on an annual basis, with output of more than 300 tonnes last year, and indeed in 2021 overtook China to be the world’s largest gold producer,” he says.

“Australia also has almost 20 per cent of the world’s economic demonstrated gold resources, which is more than any other nation.”

Australia’s 12 per cent increase in gold production from the March to June quarter of 2021 can be put down to new and existing operations

PERTH MINT LISTED PRODUCTS AND INVESTMENT RESEARCH MANAGER JORDAN ELISEO.

increasing their output.

Eliseo says gold has a number of unique characteristics that set it apart from other commodities.

Firstly, from a supply perspective, there are already vast stockpiles of gold (more than 200,000 tonnes) of the precious metal that are already owned by households, investors and central banks in bar, coin or jewellery form.

“This means that the total supply of gold is very stable, growing gradually every year due to the work of the gold mining industry,” Eliseo says.

“Gold also benefits in that it has dual drivers of demand – pure investment demand for bars and coins by people wanting to own gold in their portfolio, and jewellery demand driven by people who want to wear gold as an item of extreme beauty and display their wealth.”

These factors feed into gold typically being less volatile than other commodities over the long term.

Eliseo says Western Australia remains one of the nation’s major contributors to the gold industry.

“While gold is mined Australia wide, there is no doubt that Western Australia is the beating heart of the Australian gold industry, with circa 70 per cent of gold mining production taking place in WA,” he concludes. AM

RIO TINTO WORKERS LEAVE THE ARGYLE MINE.

AUSTRALIA PLOTS REVIVAL OF DIAMOND SECTOR

THE AUSTRALIAN DIAMOND INDUSTRY IS RAMPING UP THIS YEAR WITH PROJECT ACQUISITIONS AND EXPANSIONS ON THE HORIZON. AUSTRALIAN MINING SPEAKS WITH LUCAPA DIAMOND COMPANY, BURGUNDY DIAMOND MINES AND CURTIN UNIVERSITY ABOUT THE PROSPECTS FOR THESE ELUSIVE GEMS.

While commodities like iron ore and coal take up a large chunk of the limelight in Australia’s mining industry, the diamond sector remains a hidden gem.

Australia’s diamond activity has mostly focussed on northern Australia, which was found to be prospective when the Argyle kimberlite pipe was discovered in the 1970s.

Rio Tinto operated the Argyle diamond mine in East Kimberly until it completed final production after 37 years of operations in November 2020, producing more than 865 million carats of diamonds.

Argyle put Western Australia at the forefront of diamond mining as the world’s second largest diamond producer last year, according to the state’s Department of Mines, Industry Regulation and Safety (DMIRS).

The DMIRS confirmed in its latest statistics digest that the state’s diamond sales volumes increased to 17.4 million carats ($225 million) in 2019-20, which is its highest level in more than 10 years, mainly due to an increase in Argyle’s final output.

However, the DMIRS expects domestic diamond production to reach near zero following Argyle’s closure, but the next wave of domestic producers is looking to fill the gap.

With just a handful of diamond miners on the ASX, a company like Lucapa Diamond Company has pursued major international operations in Lesotho and Angola, Africa.

The Western Australian-based company has this year looked to increase its diamond interests closer to home with the acquisition of the Merlin project in the Northern Territory.

According to the Territory Economic Reconstruction Commission’s final report from December 2020, the region hosts the second highest amount of known diamond resources in Australia.

This could see diamond miners take advantage of the government’s support for growing its mining industry.

Merlin has a storied history in the Territory, being home to the largestever diamond discovered in Australia, a 104.73-carat type IIa D colour gem that was recovered in 2002.

In May, Lucapa agreed to acquire the Merlin project from Merlin Operations for $8.5 million.

The project contains a 4.4-millioncarat joint ore reserves committee (JORC) compliant resource, which represents an acquisition cost equal to $2 per resource carat. Lucapa aims to bring the mine back into production in 2023.

“When Merlin is brought into production it will be Lucapa’s third operating mine and when fully operational, it will significantly increase the quantity of diamonds being produced by Lucapa as a group and elevate Lucapa to a mid-tier producer,” Lucapa chief executive officer and managing director Stephen Wetherall tells Australian Mining.

“At throughput levels currently being scoped in the development plan, Merlin will also become the largest primary source diamond mine in Australia following the closure of Argyle in 2020.

“It has the distinction of being the source of the largest known diamond recovered in Australia when it recovered a 104-carat type IIa D colour diamond, and from what we see, there is potential for further large high-value stone recoveries in the run of mine production, which itself has a value well above the world average.”

Lucapa is undertaking scoping studies at Merlin for the 10 kimberlite pipes contained in the resource.

The company’s development plan will adopt an innovative vertical pit mining methodology along with open pit and underground mining across the pipes.

Wetherall is confident that Australia remains a strong country for diamond discoveries, with the company also actively exploring its Brooking tenements in Western Australia.

“History has shown that Australia can produce high-quality high-value diamonds, and the closure of Argyle has left Australia without a commercial scale producing diamond mine,” Wetherall says.

“We are looking forward to changing that. Australia has vast areas that have not been fully explored and we see potential for further discoveries at Brooking and on the Merlin mining tenement and surrounding exploration tenement as identified anomalies and targets are drilled and further exploration is conducted.”

Diamond miners’ attraction to Western Australia has also been elevated by a reduced diamond royalty rate, with the state cutting diamond

royalties from 7.5 per cent to 5 per cent in July last year.

The DMIRS states this was implemented to ensure all diamond miners have the same royalty rate as Argyle, boosting the attraction for further diamond mines to come online in the absence of the historic Rio Tinto operation.

Burgundy Diamond Mines is also growing its Australian focus after Argyle’s closure. The company this year entered into an option agreement with Gibb River Diamonds over the Ellendale project in Western Australia.

Ellendale is a globally recognised site, with its past production including more than half of the world’s fancy yellow diamonds.

Burgundy’s plan is to restart production of fancy yellow diamonds at Ellendale in 2022, and will cut and polish them at a purpose-built facility it acquired in Perth.

According to Burgundy managing director and chief executive officer Peter Ravenscroft, the company will take an unconventional approach with its growth strategy, including the establishment of the cut and polish facility.

“It was an evolution of ideas, actually,” Ravenscroft says. “As we started looking at Ellendale, we realised a lot of margin went to downstream as it always does in diamond processing.

“If you focussed on fancy colour diamonds, you’re working in a very small niche and there’s opportunity to do things differently in that niche.”

Ravenscroft says Burgundy followed the blueprint of Rio Tinto’s Argyle pink diamonds processing facilities with its venture into downstream cutting and polishing. Burgundy received strong support from the market earlier this year, raising $50 million to fund the evolving strategy.

Before Burgundy begins production at Ellendale, the company will start cutting and polishing fancy colour diamonds from third parties and will continue to do so after the mine is operational.

“We’re very excited about the potential and this focus on the small niche sector gives us the opportunity of establishing a unique end-to-end diamond business,” Ravenscroft says.

“We are now seeing ourselves as a company that produces and sells polished fancy colour diamonds, with an upstream business growing a supply of fancy colour rough stones.”

New ground Data from the Australian Bureau of Statistics (ABS) found that only $1.5 million was spent on diamond exploration in the June 2021 quarter.

While exploration is not on Burgundy’s agenda, Ravenscroft says there has been a renewed interest in searching for diamonds around Ellendale from other companies despite the deep cover associated with Australia’s geology.

The prospect of new discoveries could be assisted by research studies that identify the origins of diamonds.

It takes billions of years for diamonds to form within the Earth’s mantle, but new research from Curtin University has shed light on how they are formed, which could help miners uncover more mantle plumes for diamond deposits.

The research paper from Curtin University research fellow Luc Doucet highlighted how diamonds found in ancient oceanic rocks and superdeep continental diamonds both emerged from recycled carbon deep underground.

The diamonds are carried up to the areas they are mined from through mantle plumes, which are areas of magma that reach the Earth’s crust causing volcanic activity.

Doucet says the research could help mineral explorers in their understanding of deposits by tracking the origins and understanding of the mantle plumes.

“Our study has added an understanding about tracking where the mantle plume was in the past and it is really important to know specific ways to find the diamonds,” Doucet tells Australian Mining.

“You have a more complete story about where the mantle plumes are formed by having a complete picture of how continental and oceanic diamonds are created.

“Either you have the storage of organic matter in the transition zone, or you have the specific process which formed the diamonds in organic matter.”

While the days of the Argyle diamond mine might be over, miners such as Lucapa and Burgundy are looking to take the helm in Australian diamond mining.

“History has shown that Australia can produce high-quality, high-value diamonds, and the closure of Argyle has left Australia without a commercial scale producing diamond mine. We are looking forward to changing that,” Wetherall concludes. AM

LUCAPA RECOVERED AN 88-CARAT DIAMOND FROM THE MOTHAE MINE IN MAY 2021.