GOLD prices will need to soar to record levels in coming years if the gold sector is to avoid the wave of rationalisation hurting other parts of the resource industry, according to one of the world's top five gold executives.
Gold Fields boss Nick Holland told the Melbourne Mining Club that rising costs would strangle the global gold sector in coming years and many projects would be abandoned if the price stayed at current levels through to 2015.
Spot gold finished yesterday's Australian session at $US1622.18 an ounce.
Mr Holland was even more pessimistic about the industry's prospects if analysts' predictions of a slide in the gold price to $US1200 an ounce turned out to be right. At that price, there would be no gold industry, he said.
The comments come despite many goldminers boasting profit margins close to $1000 an ounce in the present environment where gold is fetching not far below its record high of $US1900 an ounce.
But Mr Holland said claims of $1000 margins were typically bogus, as they did not include corporate and capital costs. Miners spruiking such margins were not fooling investors, and risked drawing the attention of tax-hungry governments.
The industry was likely to see costs double in coming years, as skilled labour shortages and energy prices continued to rise, Mr Holland said.
A gold price around $US2000 an ounce would be needed to ensure current profitability was maintained, he said. "You have to run harder to stand still . . . It may be that we are going to have to see the sector rationalise before people believe us."
Investors wanting exposure to gold have flocked to exchange-traded funds rather than gold stocks and Mr Holland said companies would need to rank shareholder returns ahead of developing marginal new projects if that trend was to be reversed.
That, too, was likely to result in fewer projects being developed, as companies focused on fewer, more profitable projects, to maximise cash flow.
Based in South Africa, Gold Fields operates the St Ives mine in Western Australia, and Mr Holland said his company was keen to acquire another mine in Australia.