Gold price decline a threat to mines

GOLD stocks dropped as bullion fell to a five-year low, with costs for seven of the world’s 18 biggest mining companies of the precious metal now exceeding the spot price.

The 15-member Bloomberg Intelligence Global Senior Gold Valuation Peers index declined 2.7 percent by 1.06pm on Friday in London, to the weakest level since it began in 2005.

Record low

AngloGold Ashanti led the declines, dropping 6 percent to a record low. Gold dropped to $1 080 (R13 616) an ounce on Friday afternoon’s second fix in London.

Investors are dumping the metal on expectations that the Federal Reserve will soon raise interest rates amid a strengthening economy.

“The lowest price forecast in a Bloomberg survey of analysts for year-end 2016 is $825 an ounce, which would make the majority of gold miners unprofitable,” Bloomberg Intelli- gence analyst Ken Hoffman wrote in a note on Friday.

Harmony Gold Mining, Golden Star Resources, DRDGold, Gold Fields, Acacia Mining and IAMGold and AuRico Gold had so-called allin sustaining cash costs (AISC) of more than $1 080 per ounce mined in the first quarter, data shows.

A further six companies, including AngloGold and the world’s largest producer Barrick Gold, had all-in costs of more than $900 an ounce, the data show. Sibanye Gold, the biggest producer of gold in South Africa, had the secondlargest decline, dropping 5 percent. Melbourne-based Newcrest was the third-largest decliner, losing 4.8 percent.

Under pressure

With gold trading below $1 100 an ounce, profit at one-third of the producers of the precious metal is under threat. Among 18 gold companies that reported AISC in the first quarter, six had costs above $1 100.

That meant the companies were under tremendous pressure to cut costs or shut unprofitable operations, Hoffman said. The big question is, how quickly will they respond.

“I think these guys are scrambling right now,” Hoffman said on Friday. “This has been a really fast decline. I don’t think anybody really saw this coming.”

AISC provides a more comprehensive snapshot of the cost of producing an ounce of gold because, unlike so-called cash costs, it includes general and administrative expenses and other costs that affect profit margins.

Among the mining companies with a market value of more than $1 billion, Gold Fields had an AISC of $1 143 an ounce in the first quarter.