"Low-Hanging Fruit" Cuts Gold Mining Costs, Supply Next
Thursday, 9/12/2013 15:59
Plunging prices are now seeing new exploration cancelled, new projects deferred...
GOLD MINING output is likely to start falling as producers respond to this year's crash in world prices, according to separate reports from specialist analysts this week.
The $500 per ounce drop in gold prices between Jan. and end-June "knocked $80 billion off the combined market caps" of the 14 major producers followed by mining analysts at Societe Generale, they write.
In response, gold mining management have attacked what SocGen calls the "low-hanging fruit" of corporate overheads, dividends to shareholders, and new exploration spending.
"The next items on the list include project deferrals, the sale of noncore assets, and a review of life-of-mine plans and capex," says the report – all aimed at helping reduce gold mining costs in late 2013 and into next year.
"Asset restructuring and project deferrals is undoubtedly good news for the sector," agrees the new
Gold Survey 2013 Update from Thomson-Reuters GFMS. But with production costs only now easing from all-time highs, the sector "remains vulnerable to further declines in the
gold price."
Societe Generale's equity analysts put all-in gold mining costs at a global average of $1538 per ounce – now more than $200 above the current market price.
Some gold mining companies "at the higher end of the cost curve," says GFMS, "[have] already placed a number of smaller assets on care and maintenance."
To date, however, expectations of lower gold mining output due to the price crash have been stymied by what GFMS calls "a number of ramp-ups and project completions" first begun when prices rose into their Dollar peak of 2011. Global mine supply in the first half of 2013 rose 3% year-on-year.
Moreover for gold mining shareholders, "the spectre of falling mine supply has, up to now, provided support only to gold investor sentiment" instead of actually boosting prices and so helping improve the miners' operating margins.
Corporate activity also slumped in the gold mining sector during Jan-July 2013, says the Mining Mid-Year 2013 report from consultants PwC.
Down 74% by value from the same period of 2012 to $20.6 billion, mergers and acquisitions across the whole mining industry met a "real challenge in finding buyers."
Gold mining M&A accounted for lion's share of corporate deals, rising to 32% from Jan-July 2012's level of 26% by value. Deals in the copper mining sector shrank from 26% a year earlier to 11% in the first-half of 2013.
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