Price tumble puts projects under cloud
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.
Frequently Asked Questions about this Article…
The article says a recent slump in the gold price has made higher-cost and marginal mines unprofitable. Smaller miners (like Ramelius, Reed Resources and Norton Gold Fields) and some larger companies (including Newcrest, Evolution Mining, OceanaGold and Alacer Gold) have operations that may not be profitable at current gold prices, forcing companies to review mine performance and costs.
Hidden Valley in Papua New Guinea has been producing gold at what Newcrest called "unacceptable" costs — production costs were A$1,584 in the December quarter and A$1,355 in the September quarter. The mine made a small loss in the six months to December 31. Newcrest says it is installing a new crusher and will carefully review Hidden Valley’s performance as it works to cut costs; investors should watch results and cost improvements closely.
Newcrest says Hidden Valley is its smallest and highest-cost contributor, while its Cadia and Lihir operations are "large, low-cost and long-life," leaving the company reasonably well positioned to withstand gold price fluctuations. That said, the company has been reviewing underperforming operations and taking steps to improve cost performance.
JPMorgan analyst Joseph Kim pointed to Evolution Mining’s Edna May mine in Western Australia, Alacer Gold’s assets near Kalgoorlie, and OceanaGold’s Reefton mine in New Zealand as examples of higher-cost mines among large and mid-tier miners.
The article notes the pain for gold miners flowed on to services contractors. For example, ASX-listed drilling contractor Boart Longyear saw its shares fall more than 12 per cent to 96.5 cents on the day the article reports.
Some analysts cited in the article warned that around 30 per cent of the world’s big goldminers would fail to make money if the gold price were at US$1,300 an ounce, highlighting the risk to higher-cost producers if prices remain depressed.
Citi downgraded its gold price forecasts by about 10 per cent for the coming two years, predicting an average gold price of US$1,555 an ounce in 2013, falling to US$1,435 in 2014. Lower forecast prices increase pressure on marginal mines and can lead to downgrades of mining stocks and reviews of higher-cost operations.
According to the article, Citi downgraded Newcrest to a sell rating. At the same time, Citi named OceanaGold, Perseus Mining and Beadell Resources as its preferred gold stocks.
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