Several mines globally have already suspended output in the past 18 months, but not as many as industry watchers expected as producers focused on slashing costs and reworking mine plans to extract more profitable, higher-grade ounces.
But with bullion’s slide this week to a nine-month low of $1,208.36 an ounce, those defenses may not be enough.
“$1,200 is a critical level. The industry has geared itself around $1,200,” said Joseph Foster, portfolio manager at institutional investor Van Eck Global. “If it falls below that level, then there are a lot of mines around the world that are really going to struggle.”
Citibank estimated last month that 40 percent of the gold industry was burning cash at an all-in cost of $1,331 an ounce. But that was at a gold price of $1,290 an ounce. Bullion was last trading at $1,217 an ounce on Wednesday. So this means that last month mines were making a loss of around $39 an ounce, but now that figure has risen to a loss of $114 an ounce which just isn’t sustainable.
“Two years from now end-2016, 2017 and even into 2018, the markets will recognize that there isn’t new capacity coming on stream … Certainly the gold price will jump,” Groh said. For now the price is very low but as buyers realise the cost of locating and extracting gold is skyrocketing and the physical supply slows the gold price could soon jump.
For Goldcorp CEO Chuck Jeannes, the industry is close to “peak gold,” an expression that means production is at its all-time high as deposits get harder to find as existing production gets mined out.
“I don’t think that we will ever mine as much gold as we do in 2015. That’s positive for the gold price,” he said in an interview.