It is good to see local gold miners appear cautiously optimistic about their futures.
The gold sector in Western Australia has undergone remarkable change in the past two years. Unlike the general trend in almost every industry, resources or not, big multinational players have stepped back, while smaller local companies have grown their market share.
The gold price, Australian dollar, and issues such as indebtedness have been the key drivers favouring Australian-based companies, with a local investor base that has enjoyed the benefits of a falling local currency.
The strategy of WA players such as Northern Star has proved correct, to date. That is not just in terms of making acquisitions at the bottom of the cycle, but also in spending on exploration to ensure that these acquisitions have a future. Such exploration is a calculated risk that comes from experience in both the operational side of the industry and in understanding the appetite of investors.
All this activity and success highlights the importance of the gold industry, which, historically, has contributed more than almost any other to the development of the state and continues to benefit from the diversity and resilience of the mining companies involved.
Nevertheless, public reports from Kalgoorlie’s Diggers & Dealers conference last week masked the reality of what has been described anecdotally as a sombre affair.
There is no doubt that the amount of beer consumed and the focus on Kalgoorlie’s nocturnal entertainment makes this conference a little more colourful than most.
But the industry will be hoping that talk of deals struck at the bar of the Palace Hotel translate into real transactions and continue the run of mergers and acquisitions that has kept the gold sector relatively buoyant.
They will also want to hear more focus on greenfields exploration, an area that has been less enthusiastically funded than its brownfields cousin.
In a loosely related matter, the state government’s Gold Corporation remains an integral part of the industry.
As a major regional refinery it does offer a value-added component to gold often missing from other minerals. Nevertheless, it is very much at the bottom end of the value-adding tree and, as such, faces similar cost pressures to any business that is a price-taker.
Gold Corp has new management and, no doubt, will be evolving its strategy.
The state government, too, could examine the role of this business and the value of it remaining on its books.
While the argument that the agency’s profits make it a valuable asset for government is often put forward, it is not one accepted by this publication. Profitability is the same reason a private player may be attracted to owning such a business.
If it is strategically important for WA then it could be sold on the proviso that it remains operating in the state and, as a regional monopoly, it can be watched closely by the Economic Regulation Authority.
