US
UK
Spanish
Chinese
Japanese
Hong Kong
Canada
Australia
Korean
Deutsch
India
In terms of gold mining revenues, 2012 is expected to be another year of strong performances. Gold miners’ production costs are expected to continue rising, but as in 2011, gold prices are likely to continue providing insulation from most financial pressures. Still, gold miners will face their share of challenges in 2012 and beyond.
Low-grade mining
Gold miners are going to find themselves paying more to get less. Companies will need to devote more money to their exploration budgets, but in most cases, where there is return, it will be in the form of lower-grade resources. Large high-grade discoveries are hard to find.
Given current gold prices, increased numbers of low-grade projects may be deemed more economic than in the past, but they will also be more sensitive to rising production costs.
Follow us
With regards to low-grade projects, Steven Letwin, CEO of IAMGOLD (NYSE:IAG,TSX:IMG), said every penny makes a difference with respect to cost.
Furthermore, exploration and development projects are increasingly requiring gold miners to operate in underdeveloped locations. This often presents a host of challenges, many of which boost costs, especially with regards to accessing the needed infrastructure and electricity.
Letwin said it is going to be difficult for anyone to produce gold at less than $1,200 per ounce in terms of new discoveries.
Wage disputes
One result of high gold prices is higher expectations from workers. Demands for better wages and benefits have been on the rise and aren’t likely to subside.
Yesterday, Centerra Gold (TSX:CG) announced that unionized workers at its Kumtor mine are embarking on an illegal strike associated with demands that the company pay the mandatory employee contribution to the Kyrgyz Republic social fund. As a result, operations have been suspended. Further, Centerra has already said that any stoppages could have a significant impact on its ability to achieve the forecasted production.
Of 99 mining strikes which occurred from January 1, 2009 to December 1, 2011, most were at gold mines, and 70 percent were related to demands for higher wages, according to the 2012 Gold Price Report by PricewaterhouseCoopers (PwC).
These companies experienced an average production decline of 550 ounces per day, and the strikes often acted as a drag on their stock prices. The PwC report found that 53 percent of those companies saw their stock price decrease the day after a strike.
Investors
