Gold Industry on 'Knife-Edge' as Slump Deepens

Cape Times (South Africa), July 23, 2015 | Go to article overview

Gold Industry on 'Knife-Edge' as Slump Deepens


BYLINE: Jesse Riseborough and Thomas Biesheuvel

GOLD'S slump to a five-year low this month is squeezing the world's biggest producers of the precious metal, already struggling to rein in costs and pay down debt.

A rout in bullion has sapped investor confidence in gold producers, sending the benchmark 30-member Philadelphia Stock Exchange gold and silver index of the largest producers to its lowest since 2001. A five-day losing streak through Monday wiped $19 billion (Rebn) off the index, which includes Barrick Gold and Newmont Mining.

The precious metal's plunge is eroding profits at mines across the globe and stressing balance sheets in an industry where the biggest producers are weighed down by a record debt load of $31.5bn. Gold futures in New York are heading for their longest losing streak since 1996 amid increasing speculation US interest rates will climb this year, weakening the appeal of bullion.

"The whole industry is on a bit of a knife-edge," said James Sutton, a portfolio manager at JPMorgan Chase's $2bn Natural Resources Fund who is underweight gold stocks.

Small margins

"They are making very, very small margins. Really everybody in the industry needs higher prices. You're going to see some companies run into trouble."

The industry, on average, needs about $1 200 an ounce to break even when all costs are considered, according to Sutton. Bullion for immediate delivery declined to $1 072.36 an ounce on Monday, the lowest since March 2010. Gold fixed at $1 088 an ounce in London yesterday afternoon.

Investors have soured on gold producers as they battled to contain ballooning costs and the outlook for prices dimmed. Some producers have been obliged to enact bailout plans.

Petropavlovsk, a Russian mining company once valued at more than $3bn, was forced to tap shareholders for emergency funds earlier this year after its stock slid 99 percent in five years. …

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