Low costs help cushion Chinese gold producers
Gold prices might have further to fall but Hong Kong-listed gold miners could escape the closures of some overseas counterparts thanks to low production costs, analysts said.
About 15 per cent of the world's gold miners became unprofitable after the metal's price fell to levels close to the global average production cost of US$1,200 an ounce, Bloomberg quoted Tyler Broda, a London-based gold analyst at investment bank Nomura, as saying.
Petropavlovsk, a London-listed gold miner in Russia, was considering suspending lower-priority investments and cutting back on exploration spending should prices stay weak, chairman Peter Hambro told the news agency.
A gold equities analyst in Hong Kong told the South China Morning Post that Hong Kong-listed mainland gold miners could expect lower profit margins given the weaker price outlook, but because their production costs were low, the price drop should not affect this year's production plans.
Fujian province-based Zijin Mining, China's biggest listed gold miner, said last month its cash production cost averaged US$557 an ounce, which it said was the lowest of the world's top 10 producers. It planned to boost its mine-produced gold output 2.9 per cent to 33 tonnes this year.
Chairman Chen Jinghe said its unit cash cost surged 39.7 per cent last year because of lower ore grades at its mainstay Zijinshan mine.
The Hong Kong analyst quoted management as saying the gold content could fall a further 20-25 per cent this year, as Zijinshan had only about five more years of economic mining life. This would further raise production costs.
Shandong province-based rival Zhaojin Mining Industry's average gold cash production cost was US$512.80 an ounce last year. Including fixed costs like depreciation, finance and administration costs, total production cost was US$611.40 an ounce.
China Gold International Resources had an average cash production cost of US$825 an ounce at its Changshanhao mine in Inner Mongolia. Total production cost was US$928 an ounce.
Chief executive Song Xin said it aimed to bring this down to US$714 in 2015, when it completed an expansion of the mine.
On the spot market, gold traded at about US$1,394 an ounce in early London trading, up just under 1 per cent. It lost 11 per cent in the previous three trading days.
Strategists at Bank of America Merrill Lynch said in a report yesterday there was a risk gold could drop a further US$150 an ounce given a surging US dollar and a tame global inflation outlook. Credit Agricole slashed its forecast for this year's average gold price by 10 per cent to US$1,480 from US$1,650.