MARKETS SPECTATOR: Gold miners' lost lustre

Citigroup analyst Daniel Seeney foresees debt and cost problems ahead for two of Australia's gold miners.

Which Australian gold miners are feeling the pinch after gold’s 23 per cent fall from its $US1790.40 peak on October 4 last year?

Citigroup’s Daniel Seeney says Beadell Resources, whose major asset is in Brazil, and Medusa Mining, which has projects in Western Australia and the Philippines, may both need to raise equity soon.

Beadell has $US110 million of  debt maturing in December 14. Repayment terms have not been disclosed. It also has $72 million rescheduled for repayment by December 2013. “Beadell is being pressured to perform operationally given near-term (debt) maturity,” says Seeney. “Medusa is approaching a key phase of operational risk with a slim cash balance.”

At 1256 AEST Beadell was unchanged at 33 cents and is down 57 per cent in the last 12 months. Medusa was up 9.5 cents, or 3.8 per cent, to $2.625 and is down 53 per cent in the last year.

The Citi analyst says many of the listed gold stocks on the ASX have cash costs of well over $US1000 a ounce. “If gold continues its journey lower, many of the Australian miners will likely find themselves in a difficult position whereby prior mine plans no longer make sense,” says Seeney.

The analyst says Newcrest Mining, which has operations in Australia, the Pacific and Asia, and Resolute Mining, which operates out of Africa and Queensland, have the most prominent spending programs. “As such “(they) will likely be in a position of negative free cash flow in the short term,” says Seeney. “We view Newcrest’s balance sheet as stable enough to absorb this. Resolute retains modest debt however with the sector targeting lower debt we think Resolute’s capex schedule will be under pressure.”

Newcrest shares at 1259 AEST were up 76 cents, or 5.2 per cent, to $15.27. The stock has fallen 38 per cent in the last 12 months. Resolute shares were up 1.75 cents, or 2.2 per cent, to 80.25 cents. The stock has dropped 48 per cent in the last year.

Seeney is not a gold bull although he does predict a rise in the gold price this year at $US1555 an ounce, an 11 per cent gain from the current spot price for gold, which is $US1395.10 an ounce, according to Bloomberg data. In 2014 Citigroup forecasts gold at $US1435 an ounce. Its long-term gold price forecast is $US1050 an ounce.