That's a headline guaranteed to make any gold bug sit up and take notice. What individuals think this means remains ripe for discussion.
It's no secret that the price of gold is dropping. It closed at $1,088.60 on July 22, the second lowest level since January 2010. (In February 2010 the price bottomed out at $1,058.50.) [All figures in US dollars.]
Why so low? Ideas differ. There is discussion about the United States raising interest rates in the short term. The stronger US dollar is gaining favour by individuals and institutions. China is reportedly selling its gold reserves. Gold demand in India is not enough to pick up the slack.
Worse yet, some analysts are predicting a further fall to $1,000 per oz.
Gold producers are swaying under a mountain of debt, estimated to be more than $30 billion, a monumental rise from less than $5 billion in 2007.
Stock prices of gold miners are at their lowest levels since 2001 – and we had a global financial meltdown between then and now.
And gold production is at its highest level in history. In 2014 it was approximately 3,100 tonnes. How can than be as the price falls? Producers took advantage of the rising price that peaked at $1,875 per oz in 2011. Work to increase output, both with new and expanded projects, was initiated, those decisions pumped more ounces into the market even as the price began its long slide by the end of that year.
The all-in sustaining cost to produce an ounce of gold is a reasonable measure of how close to uneconomic some mines are. This is a far more indicative benchmark that the cash cost of production because AISC assigns more types of spending (development, exploration, sustaining capital, administration, and rehabilitation) to the total. Even AISC underestimates the all-in costs when all on- and off-site costs are considered.
The difference between AISC and all-in costs can be decreased by various cost cutting measures. Canada's gold miners have embraced paying down debt, reducing their workforces, selling non-core assets, mining higher grades, and more. The strategy has worked. Figures published by MineWeb.com in April 2015 put the 2014 average all-in cost of gold mining at $1,314 per oz, a 25% drop from the 2013 figure.
Let's take a look selected Canadian gold miners and see what their AISC were for the first quarter of 2015.
Not every producer made their Q1 2015 AISC readily available. Instead, some year end 2014 numbers were to be found:
AISC estimates for other gold miners were found in the most recent Timmins Gold presentation for these companies: Alamos Gold ($954/oz), AuRico Gold ($1,172/oz), B2Gold ($954), Detour Gold ($1,139/oz), Kirkland Lake Gold ($1,245/oz), Lake Shore Gold ($1,072/oz), and Primero Mining ($1,014). Timmins Gold estimated the numbers to point out its own low AISC.
Note that as the producers get smaller their AISC generally rise. Remember, too, that individual mines may have high costs but large, low cost mines or by-product credits can help keep a company in the black.
So is the one in 10 estimate of money losing gold miners accurate? Perhaps on an individual mine basis. Perhaps if all the smallest producers from around the world are taken into account.
Common sense might say that shutting down the highest cost gold mines to lower AISC and reduce supply is the way to go. But miners are not in any hurry to do that, as the price of gold depends less on the supply-demand equation than on a myriad of global socio-economic conditions.
What the future of the gold sector will be is unknown. Individuals can search the internet for any number of bloggers or authorities that will bolster their opinions, no matter what they want the answer to be.
That the gold situation will remain extremely fluid, is about all this writer can say.
Dr Riyaz M K Khan
If the gold price further falls on Monday and come close to $1000/oz then definitely a few mines with high AICS have to suspend their operations. This would result in less production. Once production is less and Indian and Chinese markets are back on buying track gold should rebound to $1150/oz by beginning of 2016. Indian market is dull due to lull in marriages and slightly weak monsoon and once Chinese stock market stabilizes they would also return to market. Every body believes that fundamental of gold is still strong. Yes the present 5 to 6 months are very crucial for survival of gold mining companies with high AICS.