Bullion’s slump to a five-year low this week is heaping new pressure on an already stressed gold mining industry but mine closures are not expected to happen quickly as operators instead try to reduce costs to keep operations going.
Exploration spending, capital to sustain operations, dividends and head office costs, including use of corporate jets, could face more cuts even after gold miners slashed costs by about a fifth since 2012 as bullion fell.
If gold was to stay around its current price of $1,100 per ounce, there could be some fairly significant mine closures over time, said Chuck Jeannes, the Chief Executive of Goldcorp Inc , the world’s biggest gold miner by market value.
“But I always warn people that they are not going to happen as fast as you think they might because mine general managers are really good at keeping their mines alive,” he said in an interview.
Mine managers could defer capital spending, crimping future growth, and raise the grade of ore that can be mined, to make mines more profitable.
But with that comes risks, Jeannes said. “The more you do of that the more you harm the long-term success of the asset,” he said.
At a gold price of $1,100, some 76 percent of producing gold mines are in the red, according to data from Thomson Reuters GFMS. That despite the fact that industry all-in costs are expected to fall to an average of around $1,335 an ounce this year, down from close to $1,700 in 2012.
GFMS’ definition of all-in costs include total production costs, head office overheads, interest charges, exploration and sustaining spending and extraordinary charges such as asset write-downs.
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