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At the start of the year, Hoffman said McKinsey's mine cost curve data was forecasting a US$50-60 per ounce decrease in cost from the fall in oil prices and foreign exchange rates, especially for mines in Australia, Canada and South Africa.
"There could be over $100/oz impact on costs at some mines," he said.
While gold producers are getting a cost dip due to the decline of foreign exchange and energy prices, these are likely to be outweighed by increasing costs resulting from disrupted supply chains, the inability of technical experts to travel and shutdowns and start-ups.
"Parts could become more of an issue both in having parts made around the world and then getting them to the right spot where they need to be. Just-in-time practices implemented to reduce inventory costs could have all sorts of cost impacts on companies. In the worst-case scenario, we could see a significant increase in costs. Mines weren't meant for intermittent stopping and starting, so we could see extra cost there," Hoffman said.
McKinsey estimates measures to interrupt the transmission of COVID-19 are causing impacts to about 10Moz of production due to shutdowns and slowdowns, assuming four-to-six-week closures of many mines.
"Above-ground mines will see less of an impact, perhaps 5%. Underground mines could see 15% increase to cost structure," Hoffman said.
A more prolonged impact on economic activity that means mines do not come back on stream until the third or fourth quarter could see another 5-6Moz of production impacted.
"Will we really see mines operate at full capacity for the entire year?" he asked.
A year of interrupted production and increasing costs will exacerbate an overall decline in gold mine production and inadequate investment in new production capacity.
McKinsey forecasts see peak gold production in 2020-21 at 3.37 tonnes with a 0.4% annual contraction through 2023, followed by a 4.7% annual decline through 2028 to 2,500t.
"Cash is simply not flowing into the gold industry. We continue to see a pretty sharp fall-off in supply if there continues to be a lack of investment," Hoffman said.
High grading is expected to have a long-term impact as some mines could reach the end of their lives earlier than planned. Depletion from mines operating above reserve grade is forecast to generate 128t of depletion loses through 2023.
"We could see significantly lower production from certain mines because of their previous high-grading efforts."