The world's gold industry can afford a carbon price of $100 per tonne, but top producers like Australia, China, Russia and the U.S. will become less competitive in such an environment, according to a new study.

A study by Western Australia's Centre for Exploration Targeting found that while a carbon price of $100/t of CO2 equivalent is affordable, impacts differ wildly based on how dependent countries are on fossil fuels for electricity generation. The study used greenhouse gas emissions intensity per unit of gold produced in 2018 from 194 gold mines in 35 countries.

The most significant gold-producing nations of Russia, Australia and the U.S. become less competitive under a $100/t carbon price, while Canada becomes more competitive, according to the study made available online in the Journal of Cleaner Production on Feb. 5.

A $50/t carbon price will add production costs ranging from $6.50 per ounce to $137.70/oz, while a $100/t carbon price will lift costs from between $12.90/oz and $275.40/oz.

Carbon prices also disproportionately impact gold production costs in developing countries, the study found. Gold is among the top five exports by value for 19 of the 35 countries used in the study, including Burkina Faso, Ghana, Mali, Senegal, Guinea, Mauritania and Côte d'Ivoire.

"A greater proportion of emissions come from gold produced in developing countries," said the study, which was helmed by lead researcher Sam Ulrich. Jurisdictions with high uptake of clean energy like Finland, Canada and Brazil "may receive a greater proportion of future exploration and development investment than higher emitting jurisdictions like Australia and South Africa."

China, the world's largest gold producer with over 11% of global production in 2019, is also expected to be less competitive.

The study modeled hypothetical $50/t and $100/t carbon price levels on findings by the World Bank Group-backed Carbon Pricing Leadership Coalition in 2017. The group found that such pricing is needed as a minimum by 2030 to induce behaviors required to achieve the Paris Agreement on climate change temperature targets.

While nearly 85% of Australia's electricity was sourced from fossil fuels in 2017 — mostly coal-fired — many of its gold mines are in remote locations without access to grid-supplied electricity and are, therefore, powered by on-site diesel or gas generators, Ulrich's study noted.

In Canada, over 80% of electricity was sourced from low-carbon emitting sources, mainly hydroelectric, in 2017.

Though carbon prices are also rising in British Columbia, they are easier to manage as most of the province's grid electricity is generated from renewable sources. This ensures that the Brucejack gold mine, which Newcrest Mining Ltd. will acquire with its purchase of Pretium Resources Inc., has one of the lowest greenhouse gas emissions intensities of any gold mine in the world, Newcrest CEO Sandeep Biswas told analysts Feb. 16.

Pretium is already "well-advanced" in its thinking on how to electrify its loader fleet there, Biswas said, also noting that the hydropower available for Fruta del Norte in Ecuador and Red Chris in British Columbia allows operators to focus on the on-site emissions.

Move underground

While energy source is the key driver of differences in country-weighted emissions intensities, the study found that gold grade and the type of mine are also key.

Higher-grade mines tend to have lower emissions because of the reduced processing required. Underground mines in Australia have a 40% lower emissions intensity than open pit mines, as Ulrich's 2020 study showed.

South Africa's gold mines have the highest weighted average greenhouse gas emissions intensity at 2,754 kilograms of CO2e per ounce, mostly due to brown coal-generated electricity, Ulrich's study said. While the mines are mostly underground, they are significantly deeper than those in other countries and require considerable energy to cool and ventilate.

The decision to change over from open pit to underground mining could be made earlier if more emissions information is built into engineers' models, as there are more options for electrified mobile fleets for underground operations compared to open pit, Ulrich told S&P Global Market Intelligence.

The ore body rather than carbon costs would largely drive any decision to choose underground over surface, Biswas said.

Upward trajectory

Gold miners' costs have been on an upward trajectory since late 2018, according to Market Intelligence data. In 2018, when the average gold price was $1,269/oz, Russia had the lowest costs of the significant gold-producing countries, followed by Australia, the U.S., Canada and South Africa, according to Ulrich's study.

"Gold has a relatively low carbon output per gold ounce and per revenue dollar; therefore, gold is a relatively lower emission intensity investment, which should favor gold miners as investment portfolios seek to decrease their overall carbon liability of their investments," Bellevue Gold Ltd. Chief Sustainability Officer Luke Gleeson said.

However, gold mines with the lowest emissions will be most favored by future employees, government regulations and investor appetite, said Gleeson, whose company has touted the future production of "green gold" from its Bellevue gold project in Western Australia.

The biggest challenge in implementing a carbon price will be investors switching to lower carbon-emitting mines, driven by asset managers wanting fund managers to limit the carbon exposures in their portfolios, Gleeson said.