Market review

Market review

2020 was a unique year for the precious metals industry with the Covid-19 pandemic driving gold and silver prices to record highs while disrupting both demand and supply.

Gold price,

Silver price,


Average LBMA gold price (+27%)

3,760 tonnes

Global gold demand 2020 (-14%)

In 2020, the average annual gold price reached an all-time high of $1,770/oz, an increase of 27% year-on-year. This was largely due to the Covid-19 crisis and subsequent economic developments. Prices were moderately up, exceeding $1,650/oz in early March, but the pandemic sparked a fall across all asset classes and gold dropped to its 2020 minimum price of $1,474/oz.

However, by the end of March, investors started to look to safe-haven assets and this immediately affected the gold price, which peaked in August at a high price of $2,067/oz. Following this spike, gold stabilised at around $1,900/oz and rallied during Q4 until a second surge in the pandemic and the presidential election in the US, which resulted in a year-end gold price of $1,889/oz, delivering a 25% annual return.

During 2020, a time of market uncertainty, ultra-low interest rates and economic slowdown, gold ETF demand more than doubled to a record 877 tonnes — 23% of total gold demand (2019: 9%) and the second largest category after bars and coins, which was up 3% at 896 tonnes. For the eleventh consecutive year, central banks (led by Turkey, India and Russia) were net buyers of gold. Jewellery demand dropped by 34% to its lowest annual level of 1,412 tonnes and the technology sector fell by 7% year-on-year to 302 tonnes. Overall, the total gold demand for the year decreased by 14% to 3,760 tonnes.

Global gold supply in 2020 was down 4% to 4,633 tonnes as mine production fell by 4% to 3,401 tonnes (mainly Covid-related) and recycled gold supply rose by only 1% to 1,297 tonnes.

Gold demand by category in 2019 (in the centre) and 2020

2020 was a year of three remarkable trends for silver. Having started the year by largely tracking gold dynamics, the silver price subsequently slumped to $12/oz in March. It did not then, however, see the same dramatic upturn as gold, which led to the gold/silver ratio moving to a record of 127x briefly in March, remaining around 100x until July, when the silver price started to rebound. It then outperformed gold, both because of an improved global demand, particularly in the Chinese industrial market, and the growth in silver ETF holdings. In August, silver reached a five-year high of $29/oz and tracked gold dynamics with the gold/silver ratio staying at around 80x. The silver price averaged $20.5/oz, a 27% year-on-year increase, while the year-end price stood at $26/oz, a 47% annual return.

Mine production around the world

In 2020, global gold mine production fell by 4% yearon-year to 3,401 tonnes primarily due to Covid-related disruptions. Output in China, the world’s largest gold producing country, was also impacted by more rigorous environmental standards and the consolidation of smaller producers. Some nations, however, recorded an increase attributable to newly commissioned mines and brownfield expansions: Turkey (+ 21%), Burkina Faso (+19%), Kazakhstan (+7%) and Russia (+3%). Some 45% of all silver production is based in the Americas and likely to be further impacted by severe Covid-19 restrictions.

Our operating environment

Hard rock mining is the second largest industry in Russia after oil and gas, which largely drives the country’s economic performance. The precious metals sector, however, has a vast resource potential, which still remains underexplored with a lack of investment in the sector, due mainly to tight and complex exploration regulations as well as the limited availability of foreign investment.

In 2020, Brent crude oil started the year at $68 per barrel, but global lockdowns and initial disagreements between key producing countries about supply volumes drove the benchmark Brent price to the record low value of $19 per barrel in April. This decline was gradually offset by OPEC+ (an agreement to a record cut in oil production) and hopes for a quick recovery in demand resulted in Brent crude oil rebounding above $50 per barrel in late December.

Driven by oil price dynamics, the Rouble fell sharply along with other emerging currencies, as low as 80 RUB/US$ at one point in Q1. A broad-based rebound strengthened the Rouble to 68–70 RUB/US$ in June. The Central Bank of Russia initiated monetary easing to stimulate economic recovery, and the key rate was set at 4.25% from 31 July. In October-November, when the geopolitical situation escalated, the Rouble depreciated back to 80 RUB/US$. The full-year average exchange rate weakened by 11% year-on-year to 72.3 RUB/US$ in 2020 (2019: 64.7 RUB/US$). This had a material positive impact on the mining sector, resulting in a lower Dollar value for Roubledenominated operating costs and higher margins, which were partially offset by the 4.9% inflation rate (the highest since 2016). Russia remains among the lowest-cost major gold producing countries.

The Russian economy, like that of all countries, was negatively impacted by the global Covid-19 pandemic and contracted by 3.1%. In contrast, gold production was up 3% year-on-year to approximately 341 tonnes.

In 2020, the Kazakhstan economy declined by 2.4%.While the mining sector was down, refined gold production increased by 7% year-on-year to approximately 82 tonnes. Tenge performance was driven by Covid-19 developments: the average exchange rate for the year stood at 413 KZT/ US$, rising by 9% (2019: 383 KZT/US$) and having a positive impact on the Kazakh gold mining economy. Inflation picked up to 7.5% year-on-year.

How we respond to these trends

In 2020, our focus was on safety, sustainability of production and cash flows. The Company implemented a number of strict measures to fight the spread of the Covid-19 virus among our employees, and allow our operations and projects to progress. Our solid annual production of 1,559 Koz (a 4% year-on-year increase) is attributable to a robust performance at Kyzyl as well as strong contributions from Varvara and Albazino. The positive gold price environment also spurred management decisions to start the development of previously inactive zones at some of our mines. Increased output supported by high metal prices and favourable exchange rates resulted in record EBITDA and free cash flow of $1,686 million and $610 million respectively. Our full-year TCC were below the original guidance of $650—700/GE oz as sharp devaluation of domestic currencies outweighed additional Covidrelated costs and a price driven increase in royalties. The pandemic and positive price environment led to our decision to advance investments in projects in a bid to neutralise the impact of the pandemic on project schedules. This resulted in capital expenditure for the year being 8% higher than the guidance at $583 million.

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