LONDON/VANCOUVER Nov 6 (Reuters) – Struggling gold producers plan increasingly drastic measures such as scrapping dividends, cutting jobs, halting projects and shutting mines to survive the latest price plunge, but not all of them will make it.
Gold tumbled to a more than four-year low of $1,137.40 an ounce this week, rekindling memories of last year’s 28 percent drop to $1,196. That fall put an abrupt end to years of over-spending on expansion projects and forced producers to cut costs.
Gold prices recovered early in 2014, but the slide in the past three months to new lows will force companies to step up their efforts to cope.
According to Citi analysts, about three quarters of gold mining companies burn cash at spot prices just below $1,200 on an all-in cost basis, which includes head office, interest, permitting and exploration costs.
Buenaventura, Medusa and Iamgold are among the highest-cost producers with all-in costs well above $1,300, a Citi note to investors said.
“Everyone has started now to appreciate that the music has stopped and there are only so many chairs,” Mark Bristow, chief executive of gold miner Randgold, said in an interview. He said he was frustrated that not much high-cost production had been shut down so far.
“It is questionable whether, without injection of liquidity, the leading companies in our industry can manage their businesses going forward. Everyone is trying to survive in hope that the gold price will go up.”
Unlike prices for most other commodities, the gold price does not hinge mostly on demand and supply fundamentals.
Instead, it is tied more to global economic factors such as interest rates and inflation and is more subject to investor sentiment, which make its moves more difficult to predict.
And gold equities are historically even more volatile than the metal. After outperforming the bullion price for most of this year, gold mining shares have given up all gains to sink much deeper than gold itself.
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