Low Gold Prices Forces Mining Companies to Sell at Loss

The latest decline in the price of gold is saddling higher-cost producers with losses on every ounce mined, and pushing others to the brink of also slipping into the red.

Gold fell to a four-year low of $1,137.10 an ounce today, below production costs for seven of 19 mining companies tracked by Bloomberg Intelligence, including Harmony Gold Mining Co., South Africa’s third-largest producer, and Primero Mining Corp. (P) Two more producers are within $50 of the figure.

“What’s developing is almost a two-tier type of market,” John Ing, chief executive officer at brokerage Maison Placements Canada Inc., said by phone. One tier has companies with good assets and lower costs, while the other comprises producers “who are saddled with high-cost operations” and stretched balance sheets.

“Investors are looking through the so-called carnage and are holding onto the top tier and are dumping the second tier,” he said.

The seeds of the industry’s predicament were sown during gold’s 12-year bull-run, when it rose to a record $1,923.70 an ounce in New York in 2011. Mining costs were allowed to spiral “out of control” and mines were built assuming high prices, said Mike Schroder at Old Mutual Investment Group in Cape Town.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza