Steve, Go to the bottom of Gold Mines... , click created new subject, type in Canuc/Placer
Placer has 13 mines that it will keep open. it's closing none. Globe story :
Gold mining shakeout forecast
Analysts expect more producers will have
to close mines as metal's price languishes
Monday, September 15, 1997
By Paul Waldie
The Globe and Mail
Gold producers will have to close more mines and some companies may go out of business altogether because of the weak gold price, analysts and industry officials say.
Last week, Barrick Gold Corp. of Toronto said it was closing half of its 10 mines because of the low gold price. Barrick is the first major gold producer to announce mine closings, but analysts say other companies will have to follow suit.
About 22 per cent of the world's gold mines have operating costs above the current gold price of around $324 (U.S.) an ounce, according to industry consultant Gold Fields Mineral Services Ltd. of London.
If the price of gold drops closer to $300 an ounce, nearly one-third of the world's mines will not be economical, Gold Fields says.
"We really haven't had a lot of mine closures," said Peter Ward, an analyst with Lehman Brothers Inc. in New York.
"It isn't because a lot of these mines aren't bleeding money, it's because a lot of people are still hopelessly optimistic that this is just an aberration and $320 gold is not a reality and it's going to bounce back. I disagree. I'm very bearish on the industry."
Mr. Ward said more mines will have to close and he expects the price of gold to stay at around $330 an ounce throughout next year.
Bob Buchan, chief executive officer of Kinross Gold Corp. of Toronto, believes the industry has hit bottom. However, he also expects more mine closures and some companies to go out of business.
"It's going to happen," he said referring to the likelihood of smaller players closing down for good. "They are burning through the money they have, and you can't keep doing that when the [stock] market won't give you more."
Mr. Buchan said Kinross has carefully assessed its eight mines and has no plans to close any. But he doesn't expect a recovery in gold prices for several months.
The price has dropped 18 per cent over the last year, largely because of selling by central banks that no longer view bullion as a critical part of their monetary strategy.
In the first half of this year, central banks sold 220 tonnes of gold compared with 72 tonnes in the same period last year, according to a report released Friday by Gold Fields.
The only glimmer of hope for producers is the record demand for gold for jewelry-making in several Middle Eastern countries and India. Demand for gold increased 35 per cent in the Middle East and 28 per cent in India in the first half of the year from the same period a year earlier, Gold Fields said.
But that demand won't solve the problem of the central banks, which still have a huge supply of gold and could keep the market depressed for years, Mr. Ward said.
In a recent report, he said central banks own about one billion ounces of gold; if every gold mine closed today, there would still be enough bullion in public and private hands to supply production demands for about 17 years.
Victor Flores, an analyst with Marleau Lemire in Toronto, says short selling by institutions has also caused the price to drop. Institutions sell borrowed gold in the hope of driving down the price and buying the gold back at a lower price to cover what they owe.
Mr. Flores says fears about central bank selling have helped create a lucrative market for short sellers.
"The good thing about that, though, is that a short position eventually has to be reversed," he said. "To the extent the market perception changes and improves, then [short sellers] will start to cover their position. And the mood can change very quickly."
Mr. Flores said gold prices have bottomed out and that the market will turn upward soon. He predicted gold will reach $375 an ounce next year.
However, he added that the industry still faces a lot of consolidation.
"This is not necessarily a bad thing," he said. "This industry needed to go through a kind of cleanup."
John Ing, of Maison Placements Canada Inc. in Toronto, agreed. He said gold producers were caught up in pushing production in recent years at almost any cost.
"At long last fundamentals are taking hold and the industry has had to face up to reality that a good part of the production is uneconomic," he said.
Referring to Canada's No. 1 gold producer, Barrick, he added: "When big daddy admits to the world that in fact half its gold mines are not economic, then that's a pretty solid dose of reality."
Mr. Ing also believes the industry has bottomed out and will recover next year. "I sense that this current quarter is the bottom quarter." He also forecasted gold prices at about $375 next year.
John Willson, chief executive officer of Vancouver-based Placer Dome Inc., is also bullish about the future of gold. Placer is the second-largest gold producer in Canada and among the largest in the world.
"I bet you that next year we will be in something like $360 or better for the gold price average," he said.
Placer Dome recently sold two Canadian mines and saw the sale price drop because of the low gold price. In May, Placer struck a deal to sell its Kiena and Sigma mines in Quebec for $70-million to McWatters Mining Inc. of Rouyn-Noranda, Que. But the price was renegotiated in July to $55-million because of the falling price of gold.
Mr. Willson said Placer has sold one other Canadian mine this year and cut costs to cope with the falling gold price. Placer now has an interest in 13 gold mines around the world.
"We're concentrating more on those mines which we believe can give us better financial performance," he said. "We are not considering closing any mines right now."
He added that the weak price of gold company stocks has created opportunities for Placer to acquire assets and companies. The Toronto Stock Exchange index of gold company stocks has dropped 31 per cent this year.
"We have just reorganized to be more aggressive on the acquisition side," he said. "Our strategy is one of long-term, aggressive exploration."
Mr. Willson added that gold prices averaged $384 over the last 14 years and that the current slump is abnormal.
"I have been through some of these cycles before and I believe [the price] will come back." |
