PDG liquidates capital and wakes up in hedging detox:
Roughly 2/3 (1,875,000 oz.)of PDG production (2.9 million)comes from seven mines with cash costs well over $200. They are Dome 312K @ $202, La Coipa 220K @$212, Bald Mt 140K @ $223, South Deep 160K @ $204, Misima 245K @ $208, Kidston 230K @ $218, Granny Smith 265K @ $206. A careful scrutiny of the detailed quarterly makes for interesting reading. They repeatedly make references to "lower grades", and "change in ore bodies" at these mines. Even a lower cost mine like Campbell has operational difficulties. It is clear that costs as a rule are on the rise at these sources and that sweet spots are fewer and further between.
sedar.com
They have also worked through their higher return hedges in the last couple years and now face a dry well. Forward contracts for 2001 are deliverable at only $275 and they have a 1,156,000 oz obligation. In 2002 they have 709,000 hedged at $296. In 2003 and beyond they have nominal ounces locked in. They have some way out of the money calls written that have little premium left today. That means that 68% or 4 million oz of their 2001-02 production will be sold a spot prices or if hedged now at tiny contangoes.
Selling gold at 265 spot that costs 200-225 to produce does not take into account replacement costs. They may have reserves, but the math is simple. If you get 265 and it costs 205 cash costs plus 8 reclamation, and 25-30 to replace, you have a whopping $25 profit AND NO ROOM FOR ERROR (remember this is mining, not discount retailing). And return on capex? Forget that. They would be wise to mothball these mines for better days. And I predict that they will if even the slightest problems materialize.
Bob, so far just with AU and PDG I'm seeing about half their production (5 million oz.) vulnerable to continued weakness in POG or the slightest difficulties. |
