Gold is the interesting one, there are no fundamental supply and demand drivers, even though the World Gold Council does a supply demand balancing exercise. It is because there is more gold above the ground held as ‘investment ‘holdings in the central banks that any supposed supply/demand imbalance is fictional - at a stroke a central bank can make tonnes of gold available.

When the US market is in trouble gold becomes a safe haven and generally goes up when the US$ goes down, which decrease is precipitated by the Fed cutting interest rates to prevent recession, hence the current situation of a weak US$ and a strong gold price. So, if the US drops interest rates far and fast enough to prevent a recession and the US economy booms, then interest rates will increase again, which will strengthen the US$, and gold will weaken. 

We wish them well, but it is a fairly safe bet that we will be blessed with a firm gold price for a while yet. The question is, how to take maximum advantage of it?

The gold industry will have its own geographical and political peculiarities in different parts of the world that affect its localized output and performance. For example, despite the good price, the South African gold mines, have not had a commensurate share price increase as there is a concern that operating costs and capex cost in Rand terms are rising and output is shrinking - all resulting in less earnings and cash flow.

There may well be similar circumstances elsewhere, the Minister of Mines got run over by a bus, whatever, but realize this: there is no benefit from an increased gold price unless you sell more gold at that price! In practical terms it is time to pump out the bars or miss the wave. 

Looking at the mechanisms available to take advantage, three spring immediately to mind: 1) bringing on new projects, 2) improve cash flows from savings, and 3) improve output of existing operations.

Bringing on new projects is a long term business, and may well straddle several price cycle events, but if the fruition can be chivvied up to coincide with the wave, well and good. Some smart hedging could fit in there too, but really this is all thin icing.

Savings sound good, but if what is implied is just cutting costs without increasing production, then the effect is not likely to be staggering. It may even drive the downward spiral despite the high price because input costs have a habit of creeping up on windfall dollars, and at best you achieve status quo.

The third is the really interesting one, pumping out more gold as fast as possible is the winner. And if that can be achieved with less costs so much the better, but if it costs a little to make more, that’s ok too.

In the last GOIA (no 7), we took a look at all places in the typical gold plant where costs and extra production can be achieved by installing gravity into the system. I will not reproduce that all again here, but suffice it to say that from the initial crushing stage through to final tailings there are many opportunities to recover more gold. In all of these, process cost savings come by the way. Why? Because gravity recovery comes simplistically, with minimum energy consumption, small footprint and little or no reagent consumption.

Audited increases of up to 5% have been achieved with gravity in just one section of the plant, what then might be possible with an assault on fronts! The world gold output declined by 1% in 2007, could that be arrested by little more than maximizing process output of existing operations? Food for thought.

Here is the really good news: installing gravity recovery on plants can be done in short term, and with little or no interruption to the existing process. Knelson Gravity Solution’s team of engineers have been involved in retrofit installations on a vast number of different plants and that expertise is available to assess the candidate site, make recommendations and model potential recoveries. 

We all hope it will be a big wave that lasts a long time. Whatever is, the sooner it is caught, the better the ride.