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Gold’s rapid drop threatens to weed out the weaker players, pressuring high-cost producers and setting the stage for mines to be shuttered.
“If the price stays below $1,200 for any appreciable length of time, then you will see mine closures or at least mines shrunk down considerably,” Goldcorp Inc.’s chief executive Chuck Jeannes said in an interview.
The precious metal lost about $100 (U.S.) an ounce over the past two weeks due to monetary-policy decisions in the United States and Japan that sent the U.S. dollar soaring. Gold sank as low as $1,137.40 an ounce before recovering to $1,178.50 on Friday. Miners that spend more than $1,100 to produce an ounce of gold are feeling the pinch.
Iamgold Corp. is racing to slash expenses. The Toronto-based company, with mines in Canada, South America and West Africa, spent nearly $1,200 to produce an ounce of gold in the first quarter. That was whittled down to $1,136 in the following quarter.
“If the gold price drops below $1,100 per ounce, the company will have difficulty generating free cash flow,” said Chris Mancini, an analyst with the Gabelli Gold Fund.
Iamgold says it is taking steps to cushion the blow. The company said it could use some of the proceeds from a recent asset sale to buy lower cost mines and reduce expenses.
“It is an opportunity for us to bring in better-performing assets that have lower costs and be able to be more selective on what mines we run,” Iamgold’s chief executive Steve Letwin said in an interview.
“We are going to be aggressively cutting. We are going to get down below $1,100 an ounce, for sure.” Similarly, Kinross Gold Corp. says it has options to protect itself and is not afraid to make more tough decisions. The company said it would not expand its Tasiast gold mine in Mauritania if lower gold prices persist.
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