Sirius Resources' Mark Bennett believes the fall in commodity prices, led by the gold price falling below $US1300 for the first time since September 2010 overnight, will force closures in marginal base and precious metal mines after a bubble pushed some companies to open them.
The nickel and copper miner's managing director, who has worked for 30 years for oil, gas and base and precious metal miners, says gold mines are the most likely to close in this current environment.
The price of gold is on pace to post its first annual decline since 2000 after it as much as doubled from 2008 to a record $US1921.15 in September 2011. Yesterday bullion dropped to $US1286.20 in London. Standard & Poor’s GSCI gauge of 24 commodities has dropped 4.3% this year.
“A lot of mature gold assets have been recycled,” Bennett told Markets Spectator.
“In a more normal environment that would not have happened.”
The Sirius boss, who says the company is still in a pre-development stage for its two deposits, says he understands why investors are fleeing mining stocks.
“Many people have talked about cash costs and avoided talking about real costs,” says Bennett. “Investors are sick of that.”
At 1211 AEST the S&P/ASX200 Index was down 8.488, or 0.2%, to 4,749.90, after falling as much as 1.6% to 4,683.30. The basic materials sub index, which tracks mining stocks, fell 0.7%. The oil and gas sub index was up 0.7%.
Sirius has $45 million cash on hand. Analysts have estimated the company needs as much as $450 million to develop its deposits. Bennett says production will not begin for another two years. He says the nickel price at $US7 a pound is “not unreasonable”.