Will a global carbon tax affect gold stocks in the long run

By CanadianMiningReport.com Staff Writer / November 08, 2021 / Article Link

In light of recent efforts to ramp up efforts to combat climate change, governments around the world have been talking about adopting a global carbon taxation regime. While the result of such a move has many social and economic benefits, there are concerns it could slash gold miner profit margins by up to 45% unless an effort is made to reduce greenhouse gas emissions.

Canada and Sweden are among the first to impose carbon taxes and we are already seeing the effect on gold minrs and there is certainly scope for this to become widespread across the globe.

If this tax was applied to large and mid-size gold miners, which had GHG emissions of 0.94t CO2e/oz in 2020, that would equate to an additional cost of US$123/oz.

Looking at the data from the Gold Peer Group Analysis report shows that the potential shareholder cash cost’ — which includes AISC, project capex, cash taxes and interest – came to US$1,542/oz for the world’s biggest gold miners in Q2, 2021.

This compares to an average gold price in the quarter of US$1,815/oz, leaving a margin of US$273/oz to pay dividends, repay debt or for corporate activity.

The estimated additional cost from potential carbon taxes would therefore reduce this margin by 45% at the current cost of production and gold price according to Metals Focus.

Carbon emissions will likely have a big impact on gold mining operations should they be taxed at some point in the future. But for the time being, recent gains in gold prices have come on the back of rising inflation expectations. We are seeing investment in junior gold miners and mining stocks outpace bond yields.

As shareholders and investors wait for to hear gold producers’ goals for their emissions, gold prices were pushed by central bank action that is revitalizing bulls. The current price of $US1,800/oz shows good stabilization after plunging to ~$US1,760/oz earlier in the week.

The surprise hold on interest rates several central banks and fears over the US economy are seeing banks raise borrowing costs more than expected. As a result, major economies are turning dovish as developing countries scramble for inflation-hedges.

In the month of November, we can expect to see several central bank meetings and initial 3Q’21 GDP readings. This will put focus on how policymakers plan to tackle a combination of stagnant economy with inflation. For gold this means that prices will likely remain choppy but investors historically turn to the yellow metal amid economic uncertainty for safe diversification and portfolio protection.