Gold price rebound offers hope to Australian miners struggling to retain crew

Rallying prices offer hope to Australia-listed gold producers struggling to compete in a constrained labor market after they saw little relief from cost pressures at the end of 2022.

Inflation is still having a major impact on both power and labor costs, according to results from the December 2022 quarter from producers with assets predominantly in Australia and some offshore. Australia is the world's second-largest gold producer after China.

"Every quarter we ask ourselves, 'Have we peaked, is it coming down?' We don't see material signals for those unit costs to come down," Northern Star Resources Ltd. CEO Stuart Tonkin told a Jan. 18 earnings call.

While costs have been increasing, gold prices have rallied in 2023 on a weakening U.S. dollar and cooling inflation.

"We are seeing a redeployment of capital from the U.S. dollar to gold as there is an expectation of the U.S. economy slowing and interest rates may have reached their peak," Evolution Mining Ltd. CEO and CFO Lawrie Conway told a Jan. 24 analyst call. "This is expected to happen more broadly across the globe and has seen the gold price rally ... to above US$1,900 an ounce, or around A$2,750/oz. This is around A$350/oz higher than what we compiled our fiscal 2023 budgets."

Most tier-one producers are indicating that the pressure on budgets is "still tight but not as bad as it was," Royce Haese, an Argonaut Securities metals and mining research analyst, told S&P Global Commodity Insights.

"The overall theme is that it's not going to get any worse, which should mean that if the gold price continues to rally and we start getting into positive margin territory on average ... they technically could afford to pay up [salaries], but shareholders will probably have a limited patience for gold companies just not actually making money," Haese said.

Higher costs across the board

Costs for transport, logistics and consumables have all climbed, Canaccord Genuity mining analyst Tim McCormack said in an interview.

"They're getting hit on everything from the person driving the truck to cost of explosives and underground ground support," McCormack said. "Everything is still flowing through or flowed through to a level that's going to sit higher for certainly longer than the balance of this financial year."

Thus most Australian gold producers, including Silver Lake Resources Ltd. and Ramelius Resources Ltd., are trending toward the top half of their fiscal 2023 cost guidance, McCormack said.

Newcrest Mining Ltd. said it is assessing how to offset inflation as part of a feasibility study of block cave operations at the Red Chris mine in British Columbia, with the study due in the first half of 2024.

With only fuel costs contracting, Northern Star is seeking to drive down costs by delivering economies of scale with larger plants on the same fixed-cost base, Tonkin said.

Boosting staff retention

Analysts pointed to Capricorn Metals Ltd. and Gold Road Resources Ltd. as making good money in the current environment, while most others appear to be struggling to generate the cash flow needed to attract and retain staff.

"The gold sector is fighting an inability to match the wages of the sectors [such as lithium] that are in super-profit phase, and the fact that a lot of their assets are quite old, so the reinvestment in camps and things like that are not a feature that I've heard being talked about in the gold sector. It's just too much," McCormack said.

Recruiters are also "leaning on people's personal [environmental, social and governance] values" with the attraction of "working for a business that's creating lithium and helping green the world," McCormack said.

Miners' struggles with pay increases have leveled out as "producers realized they can't keep doing that or they're just not going to make any money, so it becomes about skilled labor wanting to work for bigger and better organizations that might have internal opportunities rather than standalone, single-project companies," Haese said.

Evolution saw new hires in Western Australia exceed departures in the past two months, Conway said.

"It's not a secret in the market [regarding] the tightness of good quality experienced mining personnel, but also as important, maintenance personnel," St Barbara Ltd. CEO Dan Lougher told a Jan. 25 earnings call.

St Barbara hired contractor Macmahon Holdings Ltd. in 2021 to help train the large underground workforce at its West Australian Gwalia gold mine, in the hopes that the additional experience would help staff stick around longer.

"Now as you know, the market is pretty open to transfers ... and the last thing I want is a training mine and then people moving [elsewhere]," Lougher said. The executive also said he felt confident given Macmahon executives recently reported Gwalia has among the best retention rates among the contractor's mines.

Worker illnesses were also hitting gold operations, with Gwalia having 25 Macmahon employees out in December 2022 and St Barbara reporting one crew at 50% strength.

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