Gold miners' future dims

The price of gold has dropped to a 34-month low and is down 23 per cent this quarter. This is forcing gold miners to cut capital spending, exploration and other costs.

Citigroup analysts, however, say the stock market underestimates the potential downside in the price of gold and its effect on the metal’s miners. The brokerage estimates the all-in costs of gold mining companies as a group have increased 1.3 per cent so far in 2013 compared with 2012.

“We caution that further cuts are needed in the coming 12 months in order to make ends meet,” writes Citi analyst Johann Steyn in a research note. “Given the ‘price taker’ nature of this industry, we believe the next decade will be characterised by high-cost asset disposals, reduced capital budgets, lower exploration expenditure and balance sheet recapitalisation as companies try to survive in a lower gold price environment.”

Gold for immediate delivery fell as much as 4.4 per cent to $US1222 an ounce, the lowest level since August 24, 2010. At 1020 AEST the spot gold price was $US1233.15 an ounce, according to Bloomberg data.  

Yesterday Australia’s Bureau of Resources and Energy Economics estimates the price of gold may average $US1444 an ounce this year and $US1340 next year. Gold output in Australia, the world’s second-biggest producer, may increase to 263 tons in the 12 months to June 30, 2014, according to the bureau. Production this year is estimated at 252 tons.