Australian gold production fell by 8% in the first quarter of 2007 compared with the previous three month period, Melbourne-based mining consultants Surbiton Associates Pty Ltd said following the release of its latest Australian Gold Quarterly Review.

The March quarter 2007 production was 60.3 tonnes, about six tonnes (around 180,000 ounces) less than the previous quarter. At current prices, 180,000 ounces of gold is worth about Aus$145 million. Despite this fall, the output in the latest period was similar to that for the March quarter 2006.

Surbiton Associates managing director Dr Sandra Close says: "Overall, the industry treated fewer tonnes of ore at lower gold grades in the latest quarter compared with the December quarter.

"This is the shortest quarter in the year and also wet weather played its part, but there were other adverse factors too."

Newcrest Mining's Telfer operation, currently Australia's third largest gold producer, suffered three cyclonic events in March. These dumped 466mm of rain (more than 18 inches) which resulted in dislocations to Telfer's underground and open pit production.

The Super Pit at Kalgoorlie, owned equally by Newmont Mining and Barrick Gold suffered poor weather conditions which, combined with the limited availability of some mining equipment, reduced the supply of open pit ore. This forced the mine's operator to treat low grade stockpiled ore.

Dr Close says that as well, both Newmont and Barrick experienced sizable falls in production at some other operations.

At Newmont's Jundee mine output was down 29,000 ounces. The amount of ore treated fell by 30% and gold recovery was also lower, due partly to increased treatment plant maintenance, while ore grades were also lower. Unscheduled maintenance at Newmont's Tanami operation contributed to a reduction of 27,200 ounces.

Barrick's Granny Smith mine treated low grade stockpiles, causing output to fall by 18,000 ounces, pending the start up of underground mining operations. At Kanowna and Paddington, two operations also owned by Barrick, gold output fell by a combined 36,000 ounces, with fewer tonnes at lower grades being treated.

However, it was not all bad news. Production at Newcrest Mining's Cadia Hill mine rose 54% to 70,535 ounces due primarily to significantly higher ore grades. Dominion Mining's Challenger gold mine in South Australia recorded a 27% increase in output due to higher tonnes treated and higher grades.

Dr Close drew attention to the changes in the gold price that have occurred locally. She said that over the past two years the Australian dollar gold price had risen 50%, from the March quarter 2005 average of Aus$550 per ounce to the March quarter 2007 average of A$827 per ounce.

"Higher gold prices can lead to lower gold production as mine operators reduce the grade of ore fed into their treatment plants," Dr Close says. "This allows them to extend the lives of their mines and extract as much of the gold in the ground as possible."

During the March quarter 2007, Australian gold prices averaged $827 per ounce, about Aus$30 per ounce higher than in the previous quarter.

"I think we are still seeing a degree of 'low-grading' where ore grades are being deliberately reduced. This is good mining practice even though it leads to higher production costs per ounce."

Dr Close says there had been much "hand wringing" recently about rising production costs and the effects they were having on the industry but for Australia the margin between the average cash cost per ounce of production and the average gold spot price was still "pretty healthy.

"As a rule of thumb, if you halve the grade of ore being treated, you will double the cash cost of gold produced. The mathematics are simple but few people ever think it through."

Dr Close says it was much more revealing also to monitor the cost per tonne of ore mined and treated, rather than to concentrate purely on the cash cost per ounce of gold produced.

"Costs are certainly rising but it is not as dramatic as many claim. When you look at the average cost of mining and treating a tonne of ore, the Australian gold mining industry is doing a remarkable job of keeping costs under control given the current circumstances."

The top five operations for the March quarter 2007 were: Sunrise Dam, 148,054 ounces; Super Pit - JV, 148,000 ounces; Telfer, 142,299 ounces; St Ives/Lefroy, 119,400 ounces; and Tanami, 102,000 ounces.