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.