Gold miners’ costs are mostly higher than current spot prices, increasing the likelihood of writedowns next year, according to Nick Holland, chief executive officer of Gold Fields Ltd. (GFI)
Across the industry, costs are about $1,300 an ounce including debt repayments, Holland said by phone from Johannesburg today, citing analysts’ research. Gold dropped 0.1 percent to $1,182 an ounce, bringing the decline since the beginning of 2013 to 29 percent.
“The industry by and large is under water,” Holland said. “I would expect further writedowns. 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-fueled 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 U.S. economy, lowering demand for the safe-haven metal.
Gold Fields is able to “ride this through” as it has a break-even 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, he said.
“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 at 9:16 a.m. today in Johannesburg after the precious metal fell 1.2 percent yesterday, largely after South African trading hours. The FTSE/JSE Africa Gold Mining Index decreased 5.1 percent to 1,091.8.
Headline earnings for the South African producer with mines from Peru to Australia were $14 million in the three months to Sept. 30, compared with $18 million the previous quarter, it said in a statement today.
The Johannesburg-based company, which spun off three of its cash-generative but old South African mines to create Sibanye Gold Ltd. last year, is seeking to “aggressively” pay down debt over the next three years as it adjusts to the lower gold price, Holland said. The company is also on the lookout for cheap, in-production acquisitions that more troubled miners are offloading.
Gold Fields reduced net debt in the quarter by $137 million to $1.5 billion. All-in sustaining costs for the year are expected to be 3 percent lower than previous forecast at $1,090 an ounce, it said.
Gold production rose 2 percent to 559,000 ounces in the quarter compared with the previous three months, the company said.