Kevin Crowley
Gold producers’ costs are mostly higher than current spot prices, increasing the likelihood of write-downs next year, according to Nick Holland, the chief executive of Gold Fields.
Across the industry, costs are about $1 300 (R14 352) an ounce, including debt repayments, Holland said yesterday, citing analysts’ research. Yesterday afternoon gold fixed $6 lower at $1 190 an ounce.
“The industry by and large is under water,” Holland said. “I would expect further write-downs. Production I think will be curtailed, but it will take some time to filter through the system.”
Gold producers are struggling to adapt to a lower bullion price after a decade of debt-fuelled expansion, acquisitions and cost inflation during the boom years that saw bullion peak at $1 921.17 an ounce in September 2011.
The spot price has tumbled in the past 18 months as investors speculate the Federal Reserve will raise interest rates due to an improving US economy, lowering demand for the safe-haven metal.
Gold Fields was able to “ride this through” as it had a breakeven price of about $1 050 an ounce, or $1 090 an ounce including debt repayments, Holland said. While the company calculates its reserves at $1 300 an ounce, that number includes a 15 percent profit margin.
“Everything is fine for now, obviously the margin won’t be 15 percent at the current price; it will be less than that,” Holland said. “That said, the business continues to be run the same as before.”
Gold Fields dropped 4.8 percent yesterday morning in Johannesburg after the precious metal fell 1.2 percent on Wednesday, largely after South African trading hours. The shares closed 2.25 percent lower at R48.25. The gold mining index fell 3.47 percent.
Headline earnings for the producer with mines from Peru to Australia were $14 million in the three months to September, compared with $18m the previous quarter, it said in a statement yesterday.
The company, which spun off three of its cash-generative but old local mines to create Sibanye Gold last year, was seeking to “aggressively” pay down debt over the next three years as it adjusted to the lower gold price, Holland said. The company is also on the lookout for cheap, in-production acquisitions that more troubled producers are offloading.
Gold Fields reduced net debt in the quarter by $137m to $1.5bn. All-in sustaining costs for the year are expected to be 3 percent lower than previous forecast at $1 090 an ounce, it said. – Bloomberg