Hope glitters amid cost pressures

The mood at Diggers was not exactly one of doom and gloom, but it's fair to say the enthusiasm of the past two years had fallen back a bit along with the equities markets.

Some commodities - iron ore, coal, manganese, copper and aluminium - are hot nowadays, and some - nickel, zinc and uranium - are not. The outlook for gold, the foundation commodity of the Kalgoorlie conference, is good in terms of price but poor in terms of the cost of production.

Interestingly, some major commodities - coal, manganese, uranium and aluminium - were not represented at any of the presentations.

But Matilda Minerals made sure mineral sands got a hearing, as did Lynas Corp with rare earths, and Platinum Australia with platinum.

The Drum has therefore decided to look at a few of the presenters from the sectors that produced the most chatter: gold and iron ore.

Profitability

Goldminers face an interesting conundrum. The commodity's price reached a record of more than $US1000 ($1126) an ounce this year and many expect it to hit that level - and more - again, due to the high oil price and inflation worries.

But as with other commodities during the boom, the cost of gold production has risen sharply amid higher prices for labour, equipment, fuel and steel. The rise in the Australian currency has provided an additional headwind.

Miners such as View Resources and Monarch Gold thought the higher gold price would allow them to reopen old mines and swing them to profitability. But the grades didn't reconcile and the costs were out of hand.

Struggling goldminer St Barbara made a terrible impression when its managing director, Ed Eshuys, pulled out of his prime speaking slot at Diggers at the last minute and avoided the event altogether. St Barbara is working with the old Sons of Gwalia assets.

AngloGold Ashanti's Australian-born chief executive, Mark Cutifani, said the gold price had to climb if mines were to remain open. "Thirty per cent of the industry is cash negative when gold is somewhere between $US700 and $US800 an ounce," he said. "If the gold price trades around $US800, I see a continuing slide in Australia's gold production."

Impressive

Despite the hardships, not all West Australian miners have abandoned hope. Integra Mining, which made a greenfields discovery at Salt Creek, impressed the analyst and broking crowd with its strong presentation.

And the great hope of the WA gold industry, Avoca Resources, reported everything was going well at its Higginsville project, which is the state's first new mine in seven years.

"We've got a brand-new goldmine, a new gold discovery, a new plant and the companies whose assets haven't lived up to expectations, they've been old and tired," said Avoca managing director, Rohan Williams.

The industry is looking to Apex Resources to salvage its reputation for reworking old and tired assets. Apex has a similar strategy to Monarch - combining high- and low-grade ore from different mines and filling a mill to capacity - but it has not rushed into mining. Instead, it has been proving up enough reserves for years of production. In its favour, Apex is run by the teams behind successful miners LionOre Mining and Kagara.

Bicker

The iron ore sector was the other hot topic at Diggers. Five iron ore miners presented - three from the bigger end of town and two from the smaller end. And it produced a deal during the week.

At the bigger end, Rio Tinto, Fortescue Metals and US miner Cleveland-Cliffs agreed the outlook for the commodity remained strong due to huge demand from China.

But Rio and Fortescue continued to bicker over third-party infrastructure access in the Pilbara. Rio's iron ore boss, Sam Walsh, said opening his company's infrastructure would cost the economy billions of dollars. But Fortescue's enigmatic founder, Andrew Forrest, offered free access on his train lines to BHP Billiton and Rio - but only if they would return the favour.

Forrest seemed more reluctant to share his port while Fortescue continues to ramp up to 55 million tonnes of annual production and beyond. But that was a smokescreen. On Wednesday, he cut a deal with smaller Pilbara hopeful Atlas Iron, allowing it to stockpile ore from its Pardoo operation and load at least one ship a quarter from the Herb Elliott port.

Finally, not to be forgotten, Gindalbie Metals, a magnetite hopeful, managed to produce a major resource upgrade during the week. Its chief executive, Garret Dixon, predicted iron ore prices would rise another 20 per cent next year.