MARKETS SPECTATOR: Golden getaway

If there is a more bearish signal for the gold price after Alacer Gold’s decision to sell two of its three mines, I can’t think of one.

The spot price of gold has fallen 22 per cent since its 52-week on October 10 of $US1790.40 a troy ounce. Some gold mining executives candidly say bullion could drop to $US1000 an ounce.

Plainly, Alacer cannot stomach the thought of that. Its cash costs are rising. Unlike Newcrest Mining whose write-off of assets may reach $6 billion, Alacer is biting the bullet. It is selling its two Australian mines, each of whose life may be shorter than the company's Turkish operation, and whose costs are rising rapidly.

In the three months to March 31 this year, Alacer’s total cash costs were $US932 an ounce, a 23 per cent surge from the same period last year when they were $US759.

Costs at Higginsville and South Kalgoorlie, Alacer’s two Australian mines, have risen in the first quarter this year compared to a year ago. At Higginsville, mining costs rose $US187 an ounce and at South Kalgoorlie they rose by $US274 an ounce.

Alacer Gold’s sole remaining mine will be in Copler, Turkey, a higher margin operation, according to the company. It produced 43,683 ounces in the first quarter this year. The two Australian mines produced 33,049 ounces.

The company did not respond to a Markets Spectator query as to the value of the two Australian mines. Credit Suisse says Alacer values these assets at $580 million. The Zurich-based investment bank doesn’t think the company can get $580 million for the mines. It’s not easy being a gold miner at present.

At 1432 AEST Alacer’s Australian shares had gained 23 cents, or 9.7 per cent, to $2.60. The S&P/ASX200 Index had fallen 21.353, or 0.5 per cent, to 4703.10.