Gold Pricing Survey
Increasing gold price not equally beneficial to all producers
A recent survey completed by PricewaterhouseCoopers (PwC) points out that while gold producers are reaping the benefits of a higher gold price, not all producers are benefiting equally.
The survey notes that the gold price as measured in U.S. dollars has surged more than 25% since the end of 2002, rising to the current level of around US$400 per ounce, but other world currencies have also risen, negating some or all of the benefits. For instance, the Canadian dollar has risen 21% against the U.S. greenback while the Australian dollar and South African Rand have shot up 24% and 25%, respectively, in 2003.
As a result, mines operating in the United States with costs in U.S. dollars have seen the greatest benefit, as compared with operations found outside the U.S.A. with costs denominated in other world currencies.
The Global Gold Price Survey asked more than 40 of the largest international gold miners whether each company had operations where local currency is important for making ongoing reserve determination and carrying value assessments. Suprisingly, 15 said ‘No’.
Another interesting finding of the Global Gold Price survey is that the values used by companies to price reserves and for carrying values is up significantly – but still well below the current gold price and what analysts are forecasting.
The average price used for reserve calculations was US$337 per ounce, up from US$305 per ounce a year earlier, while the average carrying value price was US$347, up from US$307 per ounce in 2002. While the changes from 2002 to 2003 are impressive, the 2003 values are still a far cry from the current price of around US$400 per ounce and from what analysts have been forecasting. (In November 2003, a PwC survey of 15 analysts suggested the gold price would average US$380 per ounce for the next four quarters and an appropriate long-term price would be US$350 per ounce.)
PwC suggests that the discrepancy between what mining companies use and what others expect, might be because higher prices are not required to justify carrying costs and reserve amounts in light of prices in prior years. To view the full results of the survey visit www.pwc.com/ca/goldsurvey.
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