According to K92 Mine Inc, the falling worldwide gold price means that mining companies in the country will reduce non-essential spending, which would have an effect on suppliers.
John Lewins, the company's CEO, was responding to questions about existing gold prices.
He added that the gold price began the year at around US$1,950 per ounce (K6,694.49/oz) and has since declined to around US$1,730 per ounce (K5,939.21/oz).
According to him, mines may postpone capital and expansion projects, reducing jobs and production growth.
“Any movement in the gold price affects the gold mines in PNG,” Lewins said. “The average ‘all-in sustaining cost’ of production for PNG mines is around US$1,000/oz (K3,433.07/oz) to US$1,100/oz (K3,776.38/oz), so at current prices, all the mines in PNG are still operating with good margins. Lower margins, mean lower profits, less tax to Government, less money spent on exploration and capital and lower royalty payments to communities and Government. The other point to note is that the Australian dollar has strengthened against the US dollar, so the gold price in Australian dollars has dropped even more, from AU$2,700 (K7,177.11) late last year to currently AU$2,100 (K5,582.20). Given that a lot of the costs incurred by PNG gold mines are in Australian dollars, this is probably more important than the US dollar price movement.”
According to Lewins, the gold price will remain under pressure for the first half of this year, but will possibly recover in the second half.
“Much depends on the performance of the US economy and others, following the shutdown caused by the Covid-19 pandemic,” he said.
The price of gold is expected to fall in 2021 for a variety of reasons:
- Central banks' physical demand for gold has declined;
- Jewellery sales have been underwhelming as the covid-19 pandemic has stifled customer activity;
- Investors' "lack of interest" in buying gold has also been a source of market stress;
- Gold has been sold by a number of hedge funds; and
- The US dollar has strengthened, implying a drop in gold prices; and, growing interest in alternative investments such as Bitcoin.
“It should be remembered that the gold price is still at a very high price relative to the average price over the last five years,” Lewins said.
