Gold-mining companies will feel pain if the price of the metal should fall below $1,000 an ounce stay there, analysts and fund managers said.
Production cuts are possible as a last resort, and there could be consolidation in the mining sector.
A number of investment banks have forecast gold could fall below $1,000 on higher U.S. interest rates, although most also look for a recovery. But what if prices don’t stabilize?
“Some companies will be OK,” said Dan Denbow, portfolio manager of the USAA Precious Metals and Minerals Fund. “Most companies – below $1,000 – would not because while they might be able to generate a margin on the gold ounce produced, they won’t cover their G&A (general and administrative expenses) and debt service.”
Going into 2015, companies collectively could generate cash flow in a range of $1,150 to $1,250, Denbow continued. Between $1,050 and $1,100, they would need to cut additional costs.
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