JOHANNESBURG (miningweekly.com) - A higher gold price was on the way with $1 000/oz possible in 2009, Gold Fields CEO Nick Holland said on Wednesday.
“I still remain firmly of the view that we are going to see a higher gold price. I still believe we could see $1 000/oz during 2009,” Holland told Mining Weekly Online.
Holland said that the current market contagion had resulted in the “indiscriminate” selling down “even of gold” and, in addition, the base-metals pullback had "dragged gold down" with it.
“But gold will regain its value relative to everything else, particularly as all the major currencies of the world are trading on negative real interest rates and inflation is picking up, which are the ingredients for a stronger gold price,” Holland told Mining Weekly Online.
Also, worldwide gold production was under pressure, “never more so than now”, given the difficulties in raising project finance.
“We're going into a much better period; we’ve just got to be patient,” Holland added.
On the benefit of the high current R250 000/kg rand gold price and also the high Australian dollar gold price that at one stage touched the $1 400/oz level, he said that the South African gold price in rands had risen by between R40 000/kg and R50 000/kg.
“Straightaway we are going to benefit from that in our South African production, an immediate benefit, and then, in particular, as we restore production in South Africa closer to historical levels, that will give us a further bonanza. It’s actually quite opportune for us at a time when we are starting to get our production back up,” he said.
Increased Gold Fields production in Australia was also “very opportune”, as the Australian gold price had now risen from A$1 000/oz to A$1 200/oz, a 20% increase.
“That all flows through to the bottom line,” Holland said.
With new projects coming through on three continents and South African operations coming out of their rehabilitation phase, Gold Fields was positioned to increase production from the 798 000 oz of the September quarter to 1-million ounces a quarter going forward.
“That’s going to have a very material impact on the bottom line,” he said.
With Cerro Corona, the Tarkwa expansion, St Ives and the rehabilitated South African assets upping production at a time of higher gold price in the currency of the various countries, “we could be well-placed to make some decent money”.
Holland said that $800/oz could be regarded as "a reasonable floor price” for gold, because analysis showed that the all-in cost per ounce – or, as Gold Fields described it, the notional cash expenditure (NCE) per ounce – of companies the world over was “very close to $800/oz”.
“The industry doesn’t really make any money at $800/oz. You need a higher gold price to make money and, if we don’t see higher prices, you are going to see pullback in the ‘dollarised’ countries, where most of the gold is produced,” he said.
In countries like South Africa and Australia, currencies had responded to the gold price being below the floor price, but that was not where the bulk of gold production took place.
The bulk of production was still in “dollarised” countries.
Gold Fields was positioning itself for gold-price pick-up and an NCE of $725/oz , which would generate “good cash flow” for shareholders.
“Shareholders want to see cash flow. They are not just interested in ounces in the ground or blue sky. The fundamentals have come home very strongly for people in their analysis of gold companies,” he said.