Miners will need $3,000 gold price to be profitable, WGC head says

benjamen

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Problems for the South African mining companies continue:
http://www.24hgold.com/english/news...10020&redirect=false&contributor=Chris+Powell

"Amcu and the National Union of Mineworkers have tabled wage increase demands for entry-level workers of between 100% and 60% of prevailing salaries."

"The gold price is now R412,200/kg and closer to 60% of mines are in a loss-making or marginal position."

"Using the new cost reporting metrics proposed by the World Gold Council last month, the average all-in cost for the world's top five global gold mining companies was $1,467/oz in the first quarter of this year"

"By next year, about half of global production will need a break-even gold price of $2,400/oz, using a 10% year-on-year mining inflation assumption, he said."
:flail:

"Chamber senior executive Roger Baxter has said that between 2007 and 2012 there was a 238% increase in electricity prices for mining companies and a 12%-a-year rise in the annual remuneration paid per worker, roughly five percentage points higher than producer inflation."

"With declining production there is less gold to pay for fixed costs. Cash costs have increased by 23% in the past five years for South African gold mining companies, he said."
 

ancona

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Just like unions everywhere, they are killing the host. I would think that closing down mines, when it happens, will have a serious and material impact on metals prices as product disappears from the marketplace. while I understand the need for unions, too many times they use their clout to demand outsized pay and benefits, which not only results in higher prices for finished material/products, but disrupts local economies where local wages for non-union work are far less than union wages.
 

Unobtanium

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We continue to see more and more information and news in the precious metals community that paint the picture of the POG and POS right now as akin to dragging a beach ball further and further underwater. Something has to give...


From Mark Mahaffey, co-founder of the London-based Hinde Capital:

http://bullmarketthinking.com/hinde...n-pays-well-to-be-contrarian-of-the-extremes/

When asked about the prospect of gold mining stocks at this time, Mark commented that,

“Companies should fail by the hundreds and production will fall dramatically unless the gold price improves quickly…our analysis…is the price of gold that will produce a zero number in the current free cash flow column for the whole industry (i.e. breakeven, cash neutrality)…it’s $1750 an ounce.

Every single [expense] of a mining company needs to be taken into account [and] divided by the amount of ounces you’re digging out of the ground…oil is at $109 and climbing, labor unions are demanding more money and the cost of regulation keeps going up.

[So] today with gold trading at $1300 an ounce and production at $1750 and climbing, gold is trading at 75% of its production cost—and that has never happened before.

When gold traded to $800 an ounce in 1980, the cost of extraction was $100 an ounce. So gold traded eight times its production costs. Now that’s a bubble.
 

DSAbug

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jeez.. the cost of production isn't close to $1750 so i have no idea where he's pulling that number. I look at my sheet of JUNIORS and I see very few over 1100. I have names with 400 per ounce production cost as well.

I think these guys are seeing that the miners are beaten up and are trying to explain it. They are probably upside down on his gold/silver investments and is fishing for a bullish catalyst. Since everyone hates gold miners, they are easy to pick on right now. IMHO they are being way too doomsday about their prospects. Since 1900, the gold miners have been this oversold 4 times. Those were lows, not the beginning of a decline.
 

Unobtanium

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jeez.. the cost of production isn't close to $1750 so i have no idea where he's pulling that number. I look at my sheet of JUNIORS and I see very few over 1100. I have names with 400 per ounce production cost as well.

I think these guys are seeing that the miners are beaten up and are trying to explain it. They are probably upside down on his gold/silver investments and is fishing for a bullish catalyst. Since everyone hates gold miners, they are easy to pick on right now. IMHO they are being way too doomsday about their prospects. Since 1900, the gold miners have been this oversold 4 times. Those were lows, not the beginning of a decline.
Yes, I thought 1750 was high too, but the interesting point that I got out of this was the contrast in the mining cost vs POG around 1980 vs that same ratio today.
 

DSAbug

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Yes, I thought 1750 was high too, but the interesting point that I got out of this was the contrast in the mining cost vs POG around 1980 vs that same ratio today.
There is no fever like gold fever. :gold:

:D
 

benjamen

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jeez.. the cost of production isn't close to $1750 so i have no idea where he's pulling that number. I look at my sheet of JUNIORS and I see very few over 1100. I have names with 400 per ounce production cost as well.

I think these guys are seeing that the miners are beaten up and are trying to explain it. They are probably upside down on his gold/silver investments and is fishing for a bullish catalyst. Since everyone hates gold miners, they are easy to pick on right now. IMHO they are being way too doomsday about their prospects. Since 1900, the gold miners have been this oversold 4 times. Those were lows, not the beginning of a decline.
I agree that $1750 is a tad high.

From earlier in this thread:
http://www.pmbug.com/forum/f13/mine...table-wgc-head-says-951/index5.html#post23182
"Using the new cost reporting metrics proposed by the World Gold Council last month, the average all-in cost for the world's top five global gold mining companies was $1,467/oz in the first quarter of this year"

However, as costs are going up at around 10% a year, it may not take long to hit that number.
 

pmbug

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US gold miner Newmont has made heavy write-offs against its Australian mines - Boddington and Tanami - totalling $US1.5 billion ($1.62 billion) following the slump in the gold price.

The group is in the process of cutting its global workforce by a third as it seeks to ensure it can survive with the downturn.
...
http://www.smh.com.au/business/mini...ont-hit-with-16b-writeoff-20130726-2qpcf.html

Goldcorp Inc. reported an enormous net loss of US$1.93-billion in the second quarter after taking a big writedown on the Penasquito mine in Mexico.
...
The US$1.96-billion writedown reflects the exploration potential of Penasquito, Vancouver-based Goldcorp said. It is the company’s first major impairment charge this year, as it previously avoided the writedowns that have plagued competitors like Barrick Gold Corp. and Kinross Gold Corp.

“Penasquito continues to possess strong exploration upside, but due to lower metals prices, the current in situ market value of exploration potential has decreased significantly,” chief executive Chuck Jeannes said in a statement.
...
http://www.theprovince.com/business...loss+Penasquito+impairment/8706400/story.html

Goldcorp And Why Gold Miners Are Getting Crushed: Massive Cost Inflation, Dropping Prices

...
Goldcorp expects total cash costs of $1,000 to $1,100 per ounce on an all-in sustaining cost basis.
...
http://www.forbes.com/sites/afontev...rushed-massive-cost-inflation-falling-prices/
 

DSAbug

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This is why i hate the majors.. You have a 2 year correction and then they decide to cut production. No vision.
 

Unbeatable

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World's largest gold miner looking to cut up to 25% of Gold production.


Mines with all-in costs above $1,000 an ounce contribute about 25 per cent of Barrick’s expected 2013 gold production. Mr. Sokalsky said he is “prepared to make the tough decisions. Our goal is to significantly reduce the percentage of mines in our portfolio that are above $1,000 per ounce and we're working on the plans to do that.”
..such as Porgera, its major Australian project, which posted an all-in sustaining cost of $1,306 per ounce in the second quarter. (All-in sustaining costs include labour, administrative fees and exploration expenses, among others.) Barrick’s share of African Barrick Gold assets, which the company spun off in 2010, also weighs on profitability with all-in sustaining costs of $1,550 to $1,600 per ounce.
http://www.theglobeandmail.com/repo...whopping-loss-of-856-billion/article13544986/
 

ancona

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I think it's awesome! The way I see it, if these guys close down enough production to force prices up, it will take quite some time to bring the mothballed mines back up to speed, helping to maintain any upward momentum given to phyz as a result of falling production. As it is, mines all over Africa are in turmoil over labor protests and strikes. There is word of work slow-downs as a protest means at mines in South Africa as well, which hurts even more than a strike since you are getting no-low production but are still paying all of the operating costs and labor.

Obviously, there will be pain for those who hold shares in these companies, but they have no choice but to cut off those mines that are operating above the spot price of metal.
 
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Aubuy

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Obviously, there will be pain for those who hold shares in these companies, but they have no choice but to cut off those mines that are operating above the spot price of metal.
Pain would be an understatement. More like cardiac arrest :flail::judge:
 

ancona

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Aubuy,
I don't wish pain on anyone, but it's time for metals to get fucking real already. This paper distortion has gone on for far, far too long. The futures market used to be a place for legitimate hedging and price discovery, but with the advent of computers and "bank holding companies" it has become a mafia operated rigged casino, where the only winners are the banks and those who hit it by complete accident, because I can assure you that "they" don't want any winners besides themselves.

Farmers used to be able to protect themselves with futures, but can no longer trust that they won't get "Corzined" so they have backed way, way off. This can only hurt the market because as a result, the only real players are purely speculating and doing so with someone else's money.
 
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Potemkin

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...I guess Rickards was right about gold price levels above 3,000 $.
 

Unbeatable

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http://www.reuters.com/article/2013/08/22/us-safrica-strikes-idUSBRE97L0BA20130822

They've been talking about striking for a while, finally looks like they might do it. (South Africa)

National Union of Mineworkers (NUM) spokesman Lesiba Seshoka said the union would be consulting its gold industry members over strike action in the next few days.

"The earliest we will issue companies with notice of the strike is Monday next week," he said.

With such notice normally being given 48 hours in advance of any action, this meant that a stoppage in the gold industry, which is the country's biggest export earner, could start on Wednesday.
 

Unobtanium

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Median grade of the world's top 10 gold operations. Since 1998, gold grades of the world's top ten operations have fallen from 4.6 g/t gold in 1998 to 1.1 g/t gold in 2012:

 

pmbug

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The search is on for profitable precious metals operators - Mills

The stark reality for gold miners (and their investors) is that the capital costs of construction (Capex) and the daily cost of operations (Opex) have escalated significantly.

...
A complete breakdown of costs, an “all-in” cost figure, courtesy of CIBC, shows cash operating costs pegged at $700 an ounce. Sustaining capital, construction capital, discovery costs and overhead at $600. Add in $200 for taxes and you get US$1500.00 as the replacement cost for an ounce of gold.

Scotiabank calculates “full cost reporting” (all-in cost plus development capital), at US$1,458 per gold oz for the companies it covers.

“Complete cost reporting” is full cost plus corporate taxes, it’s forecast for 2013 at an average of US$1,690 per oz. gold.

Dundee Capital Markets reported that the average all-in cash cost in Dundee’s silver equities coverage universe was $22.96 per ounce during the second quarter. Dundee’s all-in cash cost calculation includes: site operating costs, exploration, corporate G&A, interest costs, royalties, taxes and sustaining capital.

Using the all-in figure provides a more accurate and definitive picture of actual mining cost and profit.

Below is a graph and a snippet from an excellent interview Joachim Berlenbach did with The Gold Report…


...
More: http://www.mineweb.com/mineweb/content/en//mineweb-independent-viewpoint?oid=202328&sn=Detail
 

pmbug

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... We now have 109 mining companies in our ‘club list’ whose share price has fallen by 90% or more since the heady days of 2010/2011 when the gold mining conferences were standing room only.

... any stock that is down more than 90% is most probably going to be down 100% soon enough and turning the lights off. ...

... The reason why mining companies are falling by 70-100% in the hundreds now is very simple. In our analysis, it costs over $1750 to mine an ounce of gold if you add in all the costs of running a mining company, not the published cash costs or the all in sustaining costs. The mining industry can argue till they are blue in the face that their costs are $800 or $1200/ ounce but if you only produce negative cash flow (that’s a LOSS to the non-analysts) when gold is below $1750, then it’s pretty clear in my books what is happening. ...
More: http://www.hindecapital.com/blog/the-growing-90-club-and-why-gold-production-is-going-to-go-to-zero/
 
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