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Gold/Mining/Energy : TVX Gold -- Ignore unavailable to you. Want to Upgrade?

To: Alex who wrote (765)	7/13/2000 7:11:21 PM
From: Edmund Lee	Read Replies (1) \| Respond to of 905

TVX has the lowest break even cost in mid-tier producers The Northern Miner of Toronto GOLD INVESTMENT COMMENTARY A report by National Financial shows that senior gold producers are able to keep their heads above water in a low-gold-price environment. The same cannot be said for mid-tier producers, which spend more to produce an ounce of gold than they realize from its sale. Gold analyst Tanya Jakusconek notes that the senior producers' break-even costs averaged US$285 per oz in the first quarter of this year, with almost every senior producer below US$300 per oz, except PLACER DOME(PDG-T), which had break-even costs of US$303. On the other hand, the mid-tier companies produced gold at an average break-even costs of US$326 per oz. in the first quarter compared with US$349 in the last quarter of 1999. During the first three months of 2000, total break-even costs for the industry as a whole broke their downward trend of the past 12 quarters (with one exception : the last quarter of 1998). Costs rose 3% or US$8 per oz. for the period, to an average of US$292 per oz. from US$284 per oz. in the last quarter of 1999. The industry break-even costs averaged a mere US$2 per oz. over the average spot price of US$290 per oz., but were US$29 per oz. lower than the average realized price of US$321 per oz. (including hedging gains). Break-even costs are defined as consisting of : cash cost plus royalties ; production taxes (total cash costs) plus depreciation, depletion and amortization costs ( total production costs); and general and administration expenses, exploration expenses, and income and mining taxes. IN SIMPLER TERMS, BREAK-EVEN COSTS REPRESENT THE TRUE COST TO A COMPANY OF PRODUCING AN OUNCE OF GOLD. The benefits of cost-cutting through 1999 and into the first quarter of 2000 allowed the senior producers to realize a modest cash margin of US$5 per oz. on a spot gold basis " Jakusconek states in her report. NEWMONT MINING ( NEM-N) posted the lowest break-even costs in the senior group at US$278 per oz., owing to its expanded production for the quarter, while HOMESTAKE MINING (HEM-N) helped by its cost-cutting program, came in second at US$280 per oz. BARRICK GOLD (ABX-T) cut its break-even costs by US$7 per oz. to US$282 per oz. in the same period. The lowest-cost producer in the battered mid-tier group proved to be TVX GOLD (TVX-T), which came in at US$275 per oz., while AGNICO-EAGLE MINES had the highest first-quarter break-even costs, at US$375 per oz., owing to high cash costs. Jakusconek notes that the mid-tier producers have been unable to reduce total costs to the same extent as the senior group. " TVX GOLD was able to show positive cash margin to the spot price and its realized price, owing to its low break-even costs and deferred gains from the close-out of its hedge book in 1998. The gold analist concludes her report by observing that, with a few notable exceptions, " the use of forward selling to insulate against commodity price risk has acted as a successful buffer to continued weak gold prices, despite arguments that the former is a significant contributor to the latter." And with a break-even costs ofUS$292 per oz. for the group as a whole, " a rise in the spot gold price would result in significant earnings generation from the producers."