Posted on 11/29/2014 2:48:30 PM PST by OneLoyalAmerican
Gold miners’ costs are mostly higher than current spot prices, increasing the likelihood of writedowns next year, according to Nick Holland, chief executive officer of Gold Fields Ltd.
Across the industry, costs are about $1,300 an ounce including debt repayments, Holland said by phone from Johannesburg today, citing analysts’ research. Gold dropped 0.1 percent to $1,182 an ounce, bringing the decline since the beginning of 2013 to 29 percent.
“The industry by and large is under water,” Holland said. “I would expect further writedowns. Production I think will be curtailed but it will take some time to filter through the system.”
Gold producers are struggling to adapt to a lower bullion price after a decade of debt-fueled expansion, acquisitions and cost inflation during the boom years that saw bullion peak at $1,921.17 an ounce in September 2011. The spot price has tumbled in the past 18 months as investors speculate the Federal Reserve will raise interest rates due to an improving U.S. economy, lowering demand for the safe-haven metal.
Gold Fields is able to “ride this through” as it has a break-even price of about $1,050 an ounce, or $1,090 an ounce including debt repayments, Holland said. While the company calculates its reserves at $1,300 an ounce, that number includes a 15 percent profit margin, he said.
“Everything is fine for now, obviously the margin won’t be 15 percent at the current price, it will be less than that,” Holland said. “That said, the business continues to be run the same as before.”
Profit Drop
Gold Fields dropped 4.8 percent at 9:16 a.m. today in Johannesburg after the precious metal fell 1.2 percent yesterday, largely after South African trading hours. The FTSE/JSE Africa Gold Mining Index decreased 5.1 percent to 1,091.8.
Headline earnings for the South African producer with mines from Peru to Australia were $14 million in the three months to Sept. 30, compared with $18 million the previous quarter, it said in a statement today.
The Johannesburg-based company, which spun off three of its cash-generative but old South African mines to create Sibanye Gold Ltd. last year, is seeking to “aggressively” pay down debt over the next three years as it adjusts to the lower gold price, Holland said. The company is also on the lookout for cheap, in-production acquisitions that more troubled miners are offloading.
Gold Fields reduced net debt in the quarter by $137 million to $1.5 billion. All-in sustaining costs for the year are expected to be 3 percent lower than previous forecast at $1,090 an ounce, it said.
Gold production rose 2 percent to 559,000 ounces in the quarter compared with the previous three months, the company said.
ping worthy
They used to be Driefontein and paid a big dividend when the Boers ran the place.
Been a dog for years now.
Yep, looks like we should buy gold. /sarc.
It sure feels good to get it right.
Energy costs are probably a pretty big input to the cost of producing gold, don’t you think?
All that drilling, blasting, digging, hauling, grinding, tumbling, smelting, shipping, etc.
Also a lot of the bribe money goes to paying for the energy use of politicians. If their private jets cost less to fuel, maybe they can get along on less cumshaw.
Sometimes it looks like there’s almost a conspiracy to destroy gold.
And, it's working.
Greetings Steely Tom:
From what I’ve gleaned watching Discovery Channel’s Gold Rush show, I would agree with your assessment.
This article indicates debt service might be a major expense. Producers without debt hold a competitive advantage.
Cheers,
OLA
Swiss to vote on massive gold-buying plan
http://bigstory.ap.org/article/59282b3bc1db4cec924db1ca5970428d/swiss-vote-massive-gold-buying-plan
Swiss set for gold vote amid ‘6,000-year bubble’ warning
http://www.cnbc.com/id/102223258
Will the US give the Dutch their gold back?
http://www.cnbc.com/id/102223527?__source=yahoo%7Cfinance%7Cheadline%7Cheadline%7Cstory&par=yahoo&doc=102223527
European Nations Repatriate Gold Reserves From United States Vaults
http://sputniknews.com/analysis/20141128/1015267390.html
Greetings MUDDOG:
Thank you for that insight.
Cheers,
OLA
Gold is all over the dang planet, finding it and extracting it is the oink in the stew..
I’d rather fall over stiff in a crikk with a sifting pan in my cold frozen hands than let the Indians and Chinese buy it all. And now , what’s up with the swiss?
Gold, like Planck , is money in the bank in Monte Carlo.
Energy costs are a large part of golds cost. If prices fall much further, mining companies will simply stop unprofitable operations which then should stabilize prices, before they rise.
One new dozer on Parkers latest dig costs $8K a week, on top of everything else.
It ain’t cheap getting pizza delivered in the Yukon, yaknow.
I bought 100 shares in the late 1970s when college students were protesting apartheid, because I couldn’t stand the protestors. Have had it ever since.
Greetings MeneMeneTekelUpharsin & bogey780:
Reminds me of a FR post not long ago where the author speculates “paper” gold has been sold 100x over. No sure if the author included gold mining stocks in that assessment.
Cheers,
OLA
Todd Hoffman is deeply saddened.
Buys new equipment anyway.
Goldbug ping.
He definitely isn’t afraid of taking chances.
That’s why I find the show so fascinating.
I think Tony the Viking is going to lose his shirt moving that dredge.
“One new dozer on Parkers latest dig costs $8K a week, on top of everything else.”
The costs must be huge since even when they mine 100 oz/week they are just “breaking even”.
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