Price tumble puts projects under cloud
Australia's biggest listed gold producer, Newcrest Mining, could be among the companies facing difficult decisions about individual mines, if the recent slump in the gold price continues.
While smaller companies such as Ramelius Resources, Reed Resources and Norton Gold Fields are often named as running the most marginal gold operations in Australasia, larger, more fancied companies such as Newcrest, Evolution Mining, Oceanagold and Alacer Gold also have mines that are unlikely to be profitable at current gold prices.
Newcrest has been emphatic in recent months that its Hidden Valley mine in Papua New Guinea has been producing gold at "unacceptable" prices..
Production costs at the mine were $A1584 in the December quarter and $A1355 in the September quarter. It made a small loss in the six months to December 31.
Newcrest has said it would "carefully review the performance" of Hidden Valley after a new crusher was installed this month.
Newcrest spokeswoman Kerrina Watson said on Tuesday that "significant effort" was being made to cut costs at Hidden Valley. "The new crusher to be installed shortly will improve its cost performance,"she said.
Newcrest was well positioned to withstand fluctuations in the gold price, she said. "Hidden Valley is the smallest contributor to Newcrest's production and the highest cost by some way." Its Cadia and Lihir operations were "large, low-cost and long-life".
Despite briefly trading at its lowest share price since June 2006, Newcrest rallied late on Tuesday to close 92¢ lower at $17.
The goldminers' pain was quickly passed on to mining services contractors such as Boart Longyear, whose ASX-listed shares fell more than 12 per cent to 96.5¢ on Tuesday.
JPMorgan analyst Joseph Kim named Evolution's Edna May mine in Western Australia, Alacer's assets near Kalgoorlie and Oceanagold's Reefton mine in New Zealand as among higher-cost mines of large and mid-tier miners.
Some analysts have warned that 30 per cent of the world's big goldminers would fail to make money with a gold price at $US1300 an ounce.
Citi downgraded its gold price forecasts by 10 per cent for the coming two years and now predicts an average gold price of $US1555 an ounce in 2013, falling to $US1435 per ounce in 2014.
Citi downgraded Newcrest to a sell rating, but named Oceanagold, Perseus Mining and Beadell Resources as its preferred gold stocks.
InvestSMART FORUM: Come and meet the team
We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free