Gold miners lose $169B as price slump continues

Low prices may close mines

NEW YORK — Gold producers, ignored as global stocks rebounded in the past two years and investors turned to exchange-traded funds that track bullion, face closing mines or shutting themselves down after the metal’s worst slump in three decades this week made 15 per cent of miners unprofitable.

Barrick Gold Corp. and Newmont Mining Corp., the world’s two largest producers, are among companies in the FTSE Gold Mines Index that have collectively lost about $169 billion in market value since bullion peaked in 2011. Gold equities are trading at the lowest level relative to gold in at least 20 years after the metal’s 13 per cent plunge so far in April.

Gold’s drop to a closing price of $1,361.10 U.S. an ounce on April 15 brings it closer to the global average production cost of about $1,200 an ounce, states Nomura Holdings Inc. That puts producers, such as Canada’s Semafo Inc. and Golden Star Resources Ltd., at risk of mine closures or “financial distress” if prices fall to that level, states Macquarie Group Ltd. Tanzania, Africa’s fourth-largest gold-producer, said a sustained slump may shut mines there.

“Any company that hasn’t been focused on efficiencies and costs for the last three to four years is going to fail in this market,” said Gavin Thomas, chief executive officer of Sydney-based gold miner Kingsgate Consolidated Ltd.

Gold’s 9.3 per cent plunge on April 15, the biggest oneday drop in New York since March 1980, couldn’t have come at a worse time for gold companies.

Despite 12 consecutive years of rising gold prices, shareholders have lost faith in the gold-mining industry, which has seen soaring production costs and made money-losing acquisitions. Investors have, instead, flocked to exchange-traded funds, or ETFs, such as the SPDR Gold Trust, which are backed by bullion and track the price of the metal.

The FTSE gold index, which tracks 27 of the largest producers, plunged 58 per cent through Thursday since bullion hit a record on Sept. 6, 2011. Over the same period, the MSCI All Country World Index, which tracks 2,431 global stocks, climbed 22 per cent.

Starved of fresh capital, smaller mining companies that carry out exploration and development were al- ready being squeezed before this week’s price crash.

There are too many companies in need of financing and there will be production stoppages as some of them cut expenses, said John Ing, CEO of Toronto-based brokerage Maison Placements Canada Inc.

“If the price stays where it is, you will see a slew of closures of smaller, non-producing companies and the majors pull way back on any new projects,” said Ken Hoffman, an analyst at Bloomberg Industries.

Companies relying on a single asset and those in Africa, already struggling with deteriorating geopolitical risk over the past year, will find it more difficult to convince banks to fund projects, said Tyler Broda, a gold analyst at Nomura in London. Tanzania, where African Barrick Gold Plc and South Africa’s AngloGold Ashanti Ltd. operate, is concerned continued price weakness will discourage investment and lead to mine closures, said Ally Samaje, acting minerals commissioner.

At current prices, “probably 15 per cent of global gold miners from our calculations would be under water at the moment,” Broda said.

He predicts gold may fall to as low as $1,000 an ounce this year. Gold rose $9.80 to close at $1,392.20 an ounce in New York Thursday.