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PwC gold study charts new ground

A study on the direct economic impact of gold commissioned by the World Gold Council, collates for the first time all the available evidence of the precious metal’s direct economic and fiscal contribution, author PriceWaterhouseCoopers...


A study on the direct economic impact of gold commissioned by the World Gold Council, collates for the first time all the available evidence of the precious metal’s direct economic and fiscal contribution, author PriceWaterhouseCoopers says.

The 54-page analysis by the international services firm assesses available data from the world’s 15 major gold producing countries and the 13 major gold using countries, which accounted for 76% of global gold mine production and 81% of gold demand in 2012. Its focus is on formal, large scale mining.

The 15 countries on which PwC based its study (and their share of global production) in 2012 were: China (14.4%); Australia (8.7%); the United States (8.1%); Russia (8.0%); Peru (6.5%); South Africa (6.2%); Canada (3.8%); Ghana (3.3%); Mexico (3.3%); Indonesia (3.1%); Uzbekistan (2.6%); Brazil (2.4%); Papua New Guinea (2.0%); Argentina (1.9%) and Tanzania (1.7%).

The key metric the study used was gross value added, or GVA, which measures the contribution to gross domestic product (GDP), employment, and taxes paid. PwC says it chose to use GVA as its metric “because it measures the value of an activity in a way which lends itself to direct comparison with GDP.”

To calculate GVA the authors took two approaches: the income approach (which involved calculating the sum of operating profits, depreciation and amortization and employee costs); and the production approach (the value of sales of gold less the cost of intermediate consumption or the cost of inputs and raw materials directly attributable to that of consumption.)

The study analyzed supply from mine production (which makes up about two-thirds of the global gold supply annually) and recycling (which makes up the rest), and concluded that the annual global supply of gold rose from 3,017 tonnes in 2007 to 4,477 tonnes in 2012, a 48% increase.

The 15 largest gold producing countries directly generated US$78.4 billion of GVA in 2012. The six largest producers were China, Australia, the United States, Russia, Peru and South Africa and direct GVA from mining stood at US$12.6 billion in China; US$9.3 billion in the U.S.; US$8.6 billion in Russia; US$8.6 billion in Australia; US$8 billion in Peru. The two fastest growing gold producers were Mexico, where gold production between 2007 and 2012 jumped 118%, and China, where it rose 47%.

The study also found that on average in 2012, the amount of economic value added per ounce of gold was US$1,139. The numbers ranged from China’s US$946 per oz to Peru’s US$1,352 per oz.

The study also concluded that formal gold mining in the top 15 producers employed about 527,900 people last year and that it makes up a significant amount of national exports for some countries, such as Tanzania, where gold constituted 36% of all exports; and Ghana and Papua New Guinea, where it made up 26% of all exports.

Gold recycling, which climbed 60% from 1,005 tonnes in 2007 to 1,616 tonnes in 2012, generated GVA of between US$23.4 billion and US$27.6 billion. (GVA per tonne of recycled gold is about US$16 million compared with about US$36 million for mined gold.) Last year the United States and Italy were the top two sources of recycled gold, followed by China and India.

Of the US$17.7 billion of capex reported by companies in 2012, roughly 34% was used to maintain existing operations and 66% was spent on expanding the existing operations or developing new ones. Canada, the United States and Australia reported the largest gold mining capex of US$2.6 billion, US$2.5 billion and US$2.3 billion, respectively.

Combined mining royalty liabilities in all 15 of the countries studied added up to about US$4.1 billion. The study found that China and Russia accounted for the greatest liability for mining royalties at US$1.4 billion and US$797 million, respectively.

In terms of demand, the study found that overall it advanced 42% between 2007 and 2012, peaking at 4,582 tonnes in 2011.

Breaking the demand down into various categories, the study reported that jewelry accounted for about 43%; investment (bars, coins and gold-backed exchange traded funds) for about 35%; central banks 12%; and technology and manufacturing (electronics, dentistry, decorative) 10%.

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