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Gold and silver miners are beginning to shut down money-losing mines. And if prices do not recover soon, many more are poised to close in the months ahead, in Canada and elsewhere. A vast portion of the gold industry is struggling to make any money at the current price of US$1,230 an ounce, according to analysts. While precious metal prices are plunging, costs are not falling nearly as fast.
That leaves many companies vulnerable to mine closures. The ones in the toughest positions are small miners with high costs, high debt and limited liquidity. There are several companies operating in Canada that fit that description, experts said. They include San Gold Corp., Claude Resources Inc., and Wesdome Gold Mines Ltd.
“They’re obviously in a dire position,” said Paolo Lostritto, an analyst at National Bank. “Those companies are on the higher end of the cost curve and they’re the most vulnerable.”
Senior and intermediate miners have plenty of liquidity to ride out the bear market in gold and position themselves for a recovery. But the smaller players, who lack the same economies of scale, are struggling with weak balance sheets and high sustaining and operating costs required to keep their mines running.
San, Claude and Wesdome reported cash costs well above US$1,000 an ounce in the first quarter, and that is before sustaining capital is included. Other small gold producers in Canada are also struggling with high costs, including Kirkland Lake Gold Inc., St. Andrew Goldfields Ltd. and Lake Shore Gold Corp.
“Most of these small underground mines are marginal at current gold prices and obviously built for a higher gold price environment,” said Jon Case, a resource portfolio manager at Sentry Investments.
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