Gold’s 9.3 percent plunge on April 15, the biggest one-day drop in New York since March 1980, couldn’t have come at a worse time for gold companies.
Despite 12 consecutive years of rising gold prices, shareholders have lost faith in the gold-mining industry, which has seen soaring production costs and made money-losing acquisitions. Investors have instead flocked to exchange-traded funds, or ETFs, such as the SPDR Gold Trust, which are backed by bullion and track the price of the metal.
The FTSE gold index, which tracks 27 of the largest producers, plunged 58 percent since bullion hit a record on Sept. 6, 2011. Over the same period, the MSCI All Country World Index (MXWD), which tracks 2,431 global stocks, climbed 22 percent.
“Gold companies have underperformed the gold price for more than the past 20 years, quite simply because they make as little money for shareholders as they did at $300 an ounce,” Brenton Saunders, who helps manage about $600 million at Taurus Funds Management Pty., said from Sydney.
Starved of fresh capital, smaller mining companies that carry out exploration and development were already being squeezed before price crash.
“There are too many companies in need of financing and there will be production stoppages as some of them cut expenses,” said John Ing, CEO of Toronto-based brokerage Maison Placements Canada Inc.
Ken Hoffman, a Princeton, New Jersey-based analyst at Bloomberg Industries, said, “If the price stays where it is, you will see a slew of closures of smaller, non-producing companies and the majors pull way back on any new projects.”
“Companies relying on a single asset and those in Africa, already struggling with deteriorating geopolitical risk over the past year, will find it more difficult to convince banks to fund projects,” Tyler Broda, a gold analyst at Nomura in London, said by phone from London on April 16.
Ally Samaje, acting minerals commissioner, also said Tanzania, where African Barrick Gold Plc and South Africa’s AngloGold Ashanti Ltd. operate, is concerned that continued price weakness will discourage investment and lead to mine closures.
At current prices, probably 15 percent of global gold miners would be under water at the moment, Broda said, predicting that gold may fall to as low as $1,000 an ounce this year.
“Golden Star, like other gold producers, is assessing the effect of the fall in the gold price on our budget and production plan,” CEO Sam Coetzer said in an email.
“We are also reviewing the discretionary capital component of our capital plan for 2013.” Semafo, which mines in West Africa, may close its Samira Hill mine in Niger, Macquarie analysts said in an April 16 note. Sofia St. Laurent, a spokeswoman for Semafo, did not immediately respond to phone calls and an email seeking comment.
“Some other miners are already contemplating cost reductions. Petropavlovsk Plc, a London-based miner of gold in Russia, may suspend inessential investment plans and cut exploration spending should prices stay weak,” Chairman Peter Hambro said on April 16 in an interview.
Greg Hawkins, CEO of African Barrick, which is 74 percent- owned by Barrick, said the drop in gold prices had given extra impetus to its review of operations designed to cut mining costs that ballooned last year.
“The company will examine its mining plans if gold remains at current levels,” Hawkins said in an interview.
Newmont is continuing to review potential opportunities to improve cash flow and preserve financial flexibility in light of the volatile metal price environment.
“AngloGold Ashanti Ltd. is reviewing each of its 20 operations to extract operating efficiencies,” said Alan Fine, a spokesman for the Johannesburg-based company.
South Africa’s Harmony Gold Mining Co. said its average so-called all- in cost of production in the six months ended Dec. 31 was about $1,446 an ounce.
“We are currently in the next planning cycle and will obviously take the new gold price level into account,” Harmony CEO Graham Briggs said in emailed comments.
To be sure, even if prices don’t recover, some companies will continue to be profitable. Barrick’s all-in production cost, which includes everything from exploration to waste-rock removal expenses, was $972 an ounce in the first quarter. Newmont’s all-in cost was $1,192.
In Australia, low-cost producers, including Beadell Resources Ltd., Regis Resources Ltd. and Newcrest Mining Ltd., the country’s largest producer, are likely to withstand the rout better than their local peers, said Vincent Pisani, an analyst at Shaw Stockbroking Ltd. in Melbourne.
Goldcorp Inc., the biggest producer by market value, is the top pick among North American producers because it has a strong balance sheet and low-cost assets.
Yamana Gold Inc., New Gold Inc. and Agnico-Eagle Mines Ltd. could also withstand lower prices without changing their plans or depleting lines of credit, analysts at RBC Capital Markets said in an April 15 note.
Furthermore, gold may still rebound from current levels. Bullion for immediate delivery will average $1,717 this year, according to the average of 29 analysts’ estimates compiled by Bloomberg.
“We’ve historically seen breaks like this in precious metals and we’ve always seen it bounce back,” Maison’s Ing said. “There is no certainty the price that we see is going to be the price that we are going to see next year or the year after.”
Asian Stocks Rise
Asian stocks rose for a second day, led by Japanese exporters as the yen slid to a four-year low against the dollar after the Bank of Japan’s stimulus policies were unopposed at a Group of 20 meeting.
Nissan Motor Co. (7201), a Japanese carmaker that gets 79 percent of sales overseas, climbed 3.6 percent. China Unicom Hong Kong Ltd., the nation’s second-largest wireless carrier, jumped 3.1 percent after increasing its third-generation mobile subscribers.
PICC Property and Casualty Co., China’s biggest non-life insurer, slipped 3.1 percent in Hong Kong after an earthquake struck the southwestern Chinese province of Sichuan at the weekend, BusinessWeek reported.
The MSCI Asia Pacific Index (MXAP) gained 0.6 percent to 137.10 as of 12:12 p.m. in Tokyo, with five shares rising for every two that fell. The measure increased 5.4 percent this year through last week amid signs the US economy is recovering and as Japanese equities rallied on speculation the BOJ will step up efforts to simulate its economy.
“We’re just at the beginning of a prolonged rally in Asian equities,” Kenneth Taubes, chief investment officer of Pioneer Investments, which oversees about $249 billion, said in a Bloomberg Television interview from Hong Kong. It’s a clear path for Japan to continue with what it has previously announced--it’s been validated by the G-20. I’m pretty optimistic and stocks, relative to fixed-income instruments, look very, very attractive.
The Nikkei 225 Stock Average (NKY) climbed 1.9 percent, heading for its highest close since July 2008. The Japanese yen fell to 99.78 per dollar at 12 p.m. in Tokyo. A weaker yen boosts the value of Japanese exporters’ overseas income when repatriated.
BOJ Governor Haruhiko Kuroda emerged from the G-20 meeting saying he was emboldened to press ahead with the campaign to defeat deflation. The central bank meets this week after pledging April 4 to double the monetary base in two years.
Australia’s S&P/ASX 200 Index added 0.2 percent, while New Zealand’s NZX 50 Index advanced 0.7 percent. South Korea’s Kospi Index (KOSPI) gained 0.4 percent, while Taiwan’s Taiex Index rose 0.5 percent.
Australia Sees Wider Deficit
Australia has lost A$7.5 billion ($7.7 billion) in revenue since the October mid-year budget review due to its strong currency and lower terms of trade, worsening its budget position, Treasurer Wayne Swan said.
“We’ve been hit in Australia with a high dollar, lower terms of trade, which has had a dramatic impact upon the profitability of companies and prices more generally in the economy,” Swan said in an interview on the Australian Broadcasting Corp.’s Insiders’ program.
That has caused a sledgehammer to revenues in the budget since the mid-year update of something like A$7.5 billion, Topix.com wrote.
Prime Minister Julia Gillard, whose ruling Labor party is trailing the Liberal-National coalition in opinion polls ahead of Sept. 14 national elections, has pledged to restrain spending before the May 14 release of the annual budget.
The country faces years of deficits due to tax shortfalls and declining prices for resources, an independent think tank said.
Australia’s state and federal governments may post combined deficits in the next decade of about 4 percent of gross domestic product, or about A$60 billion a year, the report said.
Dutch Unemployment Record High
Unemployment in the Netherlands rose by 30,000 in March 2013 and amounted to a record high of 643,000 people, according to the figures of the Dutch Central Bureau of Statistics (CBS).
This is the highest number of unemployed people since the CBS started measuring unemployment in the 1980s. The seasonally adjusted unemployment rate increased to 8.1 percent in March from 7.7 percent in February, according to the CBS, Xinhua reported.
The previous record dated back to 30 years, during the recession of 1983-84. In 1983, with 639,000 jobless people, although the unemployment rate in the year reached 10 percent, higher than the current level because the labor force as a whole was smaller at that time.
Unemployment has risen by 178,000 people in the past year. In the first quarter of 2013, there was an average of 24,000 more jobless people per month.
The unemployment increase in the past three months was strongest among people who are between 25 and 45 years old, marking a jump of 11,000 people per month.
Unemployment among people who are over 45 years old increased by 8,000 per month and people less than 25 years old rose by 4,000.
Non-Oil Exports at $41.7b
Translated by Farzam Vanaki
Iran exported $41.7 billion worth of non-oil goods in the previous Iranian year (ended March 20), said the head of Iran’s Customs Administration on Sunday.
Speaking in the inauguration ceremony of the website of North Khorasan’s customs office in Bojnourd, Abbas Memarnejad said due to gas condensates export limitations, the figure indicates a 4-percent decrease which with respect to the West’s unilateral sanctions, it accounts for nothing, IRNA reported.
He put imports during the said period at $53.7 billion, adding, “Last year, Iran’s transactions amounted to $95 billion.
Imports dropped by 15 percent in the past year because of imposing ban on importing unnecessary and luxurious goods that have domestic counterparts.
Memarnejad added that last year the government implementing a proper management system, despite the sanctions, succeeded in importing the required goods.
The official said exports of mineral and industrial products grew by 20 percent in the same period.
“With forex rate rebounding to a reasonable price, non-oil exports will also increase.”
He noted in the year which is named as the “Year of Political and Economic Epic” by the Leader of the Islamic Revolution Ayatollah Seyyed Ali Khamenei, Iran’s Customs Administration should converge efforts to facilitate goods exports.
He said, “It has also prepared supportive packages for the purpose.”
World Bank Urged to Grant Facilities
Iran’s Economic Minister Shamseddin Husseini has urged the World Bank to grant facilities to Iran.
In a meeting with Inger Andersen, World Bank’s vice president for the Middle East and North Africa, Husseini asked the bank to cooperate by providing Iran technical assistance in the fields of establishing road security and fighting air pollution in metropolises.
The minister also asked them to share their experiences with Iran.
Husseini said so far, the bank’s facilities have all been granted to Iran for humanitarian and development affairs.
“Therefore, political affairs should not affect the payment of facilities,” he said.
He added that Iran has always shown sincerity in its relations with the World Bank, mentioning Iran’s active cooperation in increasing the bank’s capital and making one-off repayment of its $53-million debt as proof.
Andersen thanked Iran for its active participation in boosting the bank’s capital.
6,000 Tractors Sold Overseas
Iran exported 6,401 tractors in the last Iranian year (ended March 20, 2013), said the managing director of Iran Tractor Manufacturing Company (ITMC).
Abolfath Ebrahimi said the value of exports during this period amounted to 1.5 trillion rials, indicating a 47-percent growth compared with the corresponding figure of last year.
He noted that of this figure, 3,013 tractors (47 percent) were manufactured in Tabriz (East Azarbaijan province), 2,772 (43 percent) in Kurdestan province and 654 tractors (10 percent) in Orumieh (West Azarbaijan province).
He listed exported models as 4,969 tractor-285 with one differential, 654 tractor-240 with one differential and 503 tractor-285 with two differentials.
Ebrahimi said ITMC exports its products to more than 30 countries.
Russia and Turkey intend to take measures that would increase bilateral trade to $100 billion.