“There’s going to be a lot more pain to come over the course of the next 12 months,” David Quinlivan, the chief executive officer of Englewood, Colorado-based Alacer said in an interview yesterday in Kalgoorlie, the Western Australian town 595 kilometers (370 miles) east of the Perth which is hosting the annual Diggers and Dealers mining forum this week.
Alacer is the third-biggest gold company traded in Australia, the largest gold producer after China. The company sold its stake in an Australian mine in February and is seeking to sell its two remaining assets there after taking charges of $902 million on the unit unit since the last quarter of 2012.
From Canada to New Zealand, gold producers have announced writedowns of at least $20 billion over the past two months on the falling bullion price and set out plans to cut jobs, pare exploration budgets, crimp executive pay and halt mining. Gold tumbled 22 percent this year and entered a bear market in April
“We’ll see a general tapering of production over the course of the next year,” Quinlivan said, flagging the likelihood that mines in Australia will be shuttered as producers seek to curb costs.
Alacer fell 3.3 percent to A$2.32 at the close in Sydney. Gold for immediate delivery rose 0.3 percent to $1,316.17.
The sale of Alacer’s two Australian mines was “drawing to a close” and the company plans to update the market on its preferred path within a month, Quinlivan said today in his presentation to the conference.
Without its Australian mines, one on the fringe of Kalgoorlie and another 125 kilometers south, Alacer would be the fifth-cheapest producer globally under the World Gold Council’s proposed all-in sustaining cash cost measure, Bank of America Merrill Lynch analysts led by Stephen Gorenstein said in a note to clients July 31.
Its Copler mine in Turkey had an average cost of $885 an ounce in the June quarter on an all-in basis, which includes the costs of exploration, administration and mine development.
The measure shows about 30 percent of the industry is unprofitable at a gold price of less than $1,200 an ounce, Gorenstein wrote. Barrick Gold Corp. (ABX), the world’s largest producer, said Aug 1. it would probably cut output at mines that have forecast all-in costs this year above $1,000 an ounce.
Australia needs “fundamental shifts” to reduce labor costs and boost productivity, Quinlivan said. “We still face competition with the big offshore oil and gas construction areas, so in some areas of the labor market there is still quite high pressure on labor costs, and there probably will be for the next couple of years.”
No Currency Relief
A slide in the Australian dollar hasn’t provided relief for producers, particularly those with open pit mines requiring large numbers of trucks, as diesel fuel costs are mainly set in U.S. dollars. “It’s not all one-way traffic,” from the declining Australian currency, Quinlivan said.
Barrick is seeking to dispose of some Australian assets, while Newmont Mining Corp. (NEM), the second-largest gold producer, has cut staff and written down the value of its operations in the country.
Some companies may seek to exploit gold’s slump to target struggling competitors and use the Kalgoorlie forum to discuss takeovers or assets raids, according to organizers.
“You’ll find there’ll be a few marriages made in the next week,” Barry Eldridge, chairman of the Diggers and Dealers forum said by phone, ahead of the three-day event which opens today. “The smart ones take advantage of this market, and if you are cashed up there are lots of advantages there for you, it’s like buying a house at the bottom of the housing market.”
There have been deals worth $11.5 billion announced or completed this year, compared with $13 billion for the whole of 2012, according to data compiled by Bloomberg.
Silver Lake Resources Ltd. (SLR) announced a takeover of Integra Mining Ltd. for A$426 million in shares during last year’s forum, and more transactions are expected this year, said Eldridge, who is also a board member of Sundance Resources Ltd. and Cliffs Natural Resources. Silver Lake has declined 79 percent this year, the worst performing company among the 43 commodity producers scheduled to make presentations to the conference.
“In circumstances like this, Diggers and Dealers becomes more relevant,” Eldridge said. “There are more deals done at Diggers in the bad times than there are in the buoyant times.”
Quinlivan will address the forum today, along with speakers including Austan Goolsbee, former chairman of the White House Council of Economic Advisers, and Nev Power, Chief Executive Officer of Fortescue Metals Group Ltd. (FMG), Australia’s third-biggest iron-ore producer.
Around 2,000 producers, investors, brokers and financiers are gathering in Kalgoorlie for the forum, 400 fewer than attended last year.
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