Millions wiped off gold stocks
Producers struggle to put best possible face on bullion's collapse as they see share prices take their second-biggest shellacking since the market crash of October 1987
By PAUL BAGNELL
Mining Reporter The Financial Post
The screws turned tighter on the world's high-cost gold producers yesterday as the price of bullion collapsed dramatically again. The price of an ounce of gold plunged US$6.10 in New York, closing at US$318.10, its lowest in 12 years.
One major gold producer, Pegasus Gold Inc. of Spokane, Wash., said it would consider delaying construction of new mine projects if current gold prices last for several months. Analysts said they believe other companies with higher-than-average production costs are
considering similar moves. "They will be taking serious looks at their high-cost mines," said Marc Cohen, a gold analyst at PaineWebber in New York.
Gold has tumbled US$13.20 from US$331.30 an ounce at Wednesday's
close. On Thursday Australia's central bank revealed it had sold 167 tonnes of gold in the past six months. The news was unexpected and raised fears that other central banks might sell gold soon. Since Wednesday's close, the Toronto Stock Exchange's gold and precious metals subindex has posted a 9.97% decline, wiping millions off the value of gold companies' stocks.
Some fundamental analysts are predicting the gold price may fall as low as US$280, said Walter Baici, a gold trader with Bank of Nova Scotia in Toronto. The Toronto Stock Exchange's gold and precious minerals subindex declined by 4.14% yesterday.
Gold producers scrambled to put the best face possible on the collapsing gold price, detailing the extent of their hedged gold sales to lock in higher prices. Others pointed to new, lower-cost gold mines soon to begin production.
The four highest-cost gold producers in North America are Getchell Gold Corp., Royal Oak Mines Ltd., Kinross Gold Corp. and Pegasus Gold.
Royal Oak chief executive Margaret Witte said the company is now relying on the high price of copper to make its new Kemess mine profitable. The British Columbia mine will produce both gold and copper, and copper prices have increased sharply this year. In 1996, Royal Oak took writedowns of $37.6 million on the closure of its Hope Brook mine in Newfoundland and reduced reserves at its Colomac operation in the Northwest Territories. But Witte said the company is not considering further production curtailments. Royal Oak reported an average cost of production of US$372 an ounce of gold in the first quarter. It has contracts to sell all of this year's production at US$395 an ounce, but has no hedged gold sales for 1998 or beyond. "We're disappointed in the panic selling" in the gold market, Witte said. "And that's what a lot of it is." But lower gold prices create bargains for companies looking to make acquisitions, she said. Royal Oak is a potential buyer of gold assets, she said.
Pegasus, meanwhile, has forward sales accounting for 80% of its 1997 production at an average of US$431, spokesman John Pearson said. The company's average cash production cost this year is expected to be US$300 an ounce. Its hedged sales stretch to 2000, Pearson said, and about 18% of the company's proven gold reserves of 6.5 million ounces is committed under forward sales contracts. If the low gold price persists, Pearson said, Pegasus will have to consider further delaying construction of the Zortman extension project in Montana and Pullalli mine in Chile. Both have already been postponed once because of weak gold markets.
At Kinross, spokesman Gordon McCreary said the company has lined up forward sales for 20% to 25% of this year's gold production at US$380 or more. Further hedging for smaller portions of production continues for five years.
Canada's two gold giants, Barrick Gold Corp. and Placer Dome Inc., were both quick to make their hedged positions known yesterday.
Barrick chairman Peter Munk said his company will sell all its gold from now to 2000 at a minimum US$420 an ounce. The company has an average cost of US$200 an ounce. Placer spokesman Hugh Leggatt said Placer has contracts to sell more than 30% of its gold production until 2001 at US$465 or more. Nevertheless, shares of both Barrick and Placer both hit 52-week lows yesterday. Placer shares (PDG/TSE)dropped $1.20 to $19.25 on volume of 5.3 million shares. Barrick shares (ABX/TSE) closed down 40› at $27.80 on trading of 4.6 million shares.
Among other gold stocks, Pegasus (PGU/TSE) rose 20› to $7.80, Royal Oak (RYO/TSE) fell 21› to $2.65 and Kinross (K/TSE) lost 55› to $5.10. The closes for Royal Oak and Kinross are 52-week lows.
|
