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Industry needs $700/oz gold to stay afloat - Barrick's Sokalsky
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3rd June 2008
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On average, gold producers will need the price of gold to stay north of $700/oz if they are to turn a profit in the current environment of rising costs, Barrick Gold CFO Jamie Sokalsky said on Tuesday.

Industry cash costs are currently around $450/oz to $500/oz and, taking into account the cost of bringing on new production, depreciation, development costs, exploration, administrative expenses and so on, “that's easily $700/oz to $800/oz”, Sokalsky said in webcast presentation.

“To us that's the long-term break-even cost to the industry...below $700/oz to $800/oz long term, the industry doesn't make money,” he said.

Gold prices were pushed skywards in the fourth quarter of 2007 and the first few months of this year, largely by investment demand, as a weakening dollar, the US credit crisis, inflation concerns and geopolicital tensions and uncertainty raised the metal's attractiveness as a safe haven, or wealth-preservation investment.

The price of gold set a new high of $1 033,70/oz on March 17, but has since corrected and was trading at around $879/oz on Tuesday afternoon.

Barrick expects that the bullion prices have further to go this year, however, as dwindling mine supply and higher prices for fuel, labour and other costs would provide a “strong floor” for the gold price, Sokalsky said.

“It is also going to make some new projects that the industry has difficult to bring in and that's going to be very bullish for the gold price."

Barrick reported cash costs of $393/oz for the first three months of this year, which, after realising an average gold price of $925/oz, resulted in a margin of $532/oz.

SUPPLY


Sokalsky said the Barrick, the world's biggest gold miner, expects mine supply of the yellow metal to continue to decline.

“I think we've seen the peak in mine supply a couple of years ago,” he said.

Total global gold production contracted 0,4% in 2007, to an eleven-year low, according to metals consultancy GFMS.

“We feel very strongly, and we've done a lot of analysis on this, that gold supply could drop 10% to 15% more than what forecasters are thinking in the next five to seven years,” Sokalsky commented.

Barrick chairperson and acting CEO Peter Munk said at the group's AGM last month that the failure of the gold-mining industry to find and exploit large new deposits of the yellow metal was “tragic”.

Opposition from nongovernmental organisations, as well as increasing, "yet understandable" demands from host countries that they receive a bigger share of profits from mines, was making it difficult to develop successful new operations, Munk said at the time.


Edited by: Liezel Hill

 

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