Gold slid marginally. As speculators offloaded their holdings of the precious metal to lock in gains after it climbed to a two-month high on Thursday and commodity prices slipped, gold declined to $961.16 an ounce on Friday.
Not to worry though, for bullion, which touched $971.68 an ounce on Thursday, is still on course for a fourth weekly advance as the dollar, as measured against six major currencies, traded near the lowest level in 10 months.
Gold may advance next week as investors seek an alternative to a weakening dollar, a survey showed. Eleven of 20 traders, investors and analysts surveyed by Bloomberg News, or 55 per cent, said bullion would gain next week. Five forecast lower prices and four were neutral.
Bullish on the metal, BNY Convergex Group LLC said investors should buy options on gold because the dollar has dropped and traders are betting that U.S. fiscal and monetary stimulus will spur inflation.
Even as analysts have been predicting a rash of takeovers within the gold sector, as strong gold prices have helped larger miners raise funds, there are some biggies who are actually shutting the door and bolting it. Like Yamana Gold which has actually cut back on its assets, a concept that runs counter to the general thinking in the gold sector that more is better. For the junior players, their slow number continues to play, given that the aftershocks of last year’s resource selloff and tight credit markets have kept valuations very low.
Rather than add projects, the Toronto-based company agreed in June to sell three of its higher-cost mines in Brazil and Honduras to exploration company Aura Minerals for about $200-million to focus instead mining and discovering more “high-quality”, low-cost ounces at its other properties spread throughout Latin America.
Chief executive Peter Marrone, who built the company into a mid-tier player through a series of takeovers in 2006 and 2007, has shut the door on further acquisitions, saying the company’s current assets are more attractive than anything on the market.”It is not part of our strategic plan,” Marrone said. “We’ve outlined what the growth plan of the company is and we’re going to continue with that growth plan. It is completely organic.”
The company has also backed away from its past prediction of reaching 2 million ounces of annual production by 2012, a boast that used to be standard in its news releases. Indeed, its outlook seems a lot more modest now, with expected output of about 1.2 million ounces this year, down from previous forecasts of 1.3 million to 1.4 million.
“I believe over time we’ll still get to that sweet spot of 2 million, but over a longer horizon,” Marrone is expected to have said.
If gold miners can’t find the mother lode of profit in this exceptionally favorable business environment, something must be wrong. Right?
Yamana’s by-product cash cost of just $213 per gold-equivalent ounce sets an industry standard, although Gammon Gold (NYSE:GRS) could raise the bar by achieving projected costs of $14 per ounce by 2011. Like competitors Agnico-Eagle Mines (NYSE: AEM) and Goldcorp (NYSE: GG), Yamana too is poised to deliver significant organic production growth, insist some analysts.
Some gold miners are still keep counter-cyclical gold hedges on their books. Barrick Gold (NYSE: ABX) offers only constrained leverage to the continuing advance of gold prices because of an oppressive hedge book of forward sales. AngloGold Ashanti (NYSE: AU) and Randgold Resources (Nasdaq: GOLD) have likewise garnered lot of criticism.
South Africa’s Gold Fields (GFIJ.J) and three smaller Canadian rivals said lower costs helped boost their quarterly results, sending shares of all four precious metal mining companies higher on Thursday.
The gold miners, — Gold Fields, Iamgold Corp (IMG.TO), Alamos Gold (AGI.TO) and New Gold Inc (NGD.TO) — provided mixed outlook on gold production and anticipated production costs.
Gold Fields, the world’s No. 4 gold producer, expects costs to rise 15 per cent in the near term, on the back of a new pay deal for workers, higher electricity tariffs and a stronger rand/dollar exchange rate. It also said production would remain below its long-term target.
But Iamgold and Alamos were more optimistic and forecast an increase in near-term gold output, along with a decline in production costs. New Gold reiterated its prior production and cost outlook.
Last week, Barrick Gold Corp (ABX.TO), the world’s largest gold producer, posted stronger-than-expected quarterly earnings, while forecasting lower mining costs in the quarters ahead.
Minefinders Corp. Ltd.’s (TSX:MFL) second-quarter loss narrowed compared to a year ago before it started generating revenue from its major mining operation. Its Dolores gold and silver mine in Mexico has moved from pre-commercial operations to commercial production, helping the company generate US$ 23.3 million in revenues.
“The second quarter has continued to deliver strong and increasing output at a relatively low cash cost,” said president and chief executive officer Mark Bailey.