Gold’s reputation as a safe haven for investment was recently put to the test, with the precious metal’s price tumbling by nearly $200/oz. The Standard & Poor’s/ASX Gold Index dropped by some 24%, while the Standard & Poor’s/TSX Global Gold Index dropped by 22%.

In Australia, nearly every gold miner listed on the ASX reported a material decline in share prices, mirroring the bullion’s tumble, with the average across the Australian-listed gold sector down around 23%.

The World Gold Council (WGC) blamed the fall in the gold price on speculative traders operating in the futures markets.

“Their short-term view of generating a trading profit is in stark contrast to the views of long-term investors in gold, as evidenced by the massive wave of physical gold buying that began [in April],” the WGC said.

“The surge in gold purchases is spanning markets from India and China to the US, Japan and Europe. Buyers are viewing this as an opportunity to purchase gold at prices not seen in the past couple of years,” it added.

Economist Gavin Wendt, of MineLife, has noted that the current price environment would likely prompt gold miners to look at cutting back operational costs to conserve margins.

“Companies are constantly reviewing operations based on returns and profit-ability. The recent fall in the gold price will mean that companies take an even harder look at their operations and ways of reducing costs and maximising margins.”

This prediction has proved true, as Australia’s largest gold miner, Newcrest, recently announced that it would review all its business activities, particularly those related to higher-cost current or future production.

The miner blamed the review on the continued high operating and capital costs of its projects, as well as the recent decline in commodity prices, which had not been accompanied by a reduction in the strength of either the Australian dollar or the Papua New Guinea kina.

Fellow gold miner Resolute Mining also reported in April that it was reviewing its expansion plans in light of the current market conditions to determine if funds would not be better spent on emerging opportunities.

Wendt said that despite the current reviews, few of Australia’s gold operations were under any actual threat.

“I don’t believe that there are many major gold operations under threat in Australia, particularly as I believe that the price will rebound from current lows anyhow,” he noted.

Wendt’s sentiment has been echoed by gold mining consultant Surbiton Associates, with director Dr Sandra Close noting that, despite speculation, the Australian gold industry was in no danger of losing too much ground.

“If low gold prices persist, gold producers will certainly have to make adjustments but mining is a long-term business and you can’t just turn it on and off like a tap,” she said.

Close said it was far too easy to look at a list of the local gold producers and their cash costs of production and, on that basis alone, speculate on which might survive and which might not.

“That is much too simplistic. There are many other factors which investors should take into account rather than make rash decisions.”

Meanwhile, the current market environment has left the door open for cashed-up gold miners to make a play for opponents, while juniors are banding together to ride the tide.

Norton Gold Fields has made a share offer for fellow listed Kalgoorlie Mining, offering 0.054 of its own shares, and the same amount of options, for every Kalgoorlie share held, while Norton itself was successfully acquired by China’s Zijin Mining during 2012.

ASX- and TSX-listed gold miner Troy Resources has also launched a takeover offer for Azimuth Resources in a deal that valued the junior at some A$188-million.

In a joint statement around the falling gold price, Azimuth and Troy noted that while the market volatility was not good for either company’s shareholders, it did reinforce the logic to proceed with the takeover offer.

“In an environment where gold and equity markets are unforgiving and investors are increasingly risk averse, the Troy offer will bring together the best attributes of both companies in one group which will have the technical skills, financial capacity and geological prospectivity to deliver value to shareholders over the long term,” the com- panies said.

In the junior market, Southern Cross Goldfields and Polymetals Mining were merging to create a midtier gold miner with a resources inventory of some 1.69-million ounces and a market capitalisation of A$30-million.

Under the merger agreement, Southern Cross was offering 11 of its own shares for every one Polymetals share held, with Southern Cross shareholders collectively holding a 47% interest in the merged company and Polymetals shareholders collectively holding the remaining 53%.

Australia’s International Goldfields has also signed a definitive merger agreement with US-based Santa Fe Gold Corporation, resulting in a combined entity with a market capitalisation of A$70-million and gold and silver production pegged at 28 000 oz/y of gold equivalent.

A merger between ASX-listed Cortona Resources and Unity Mining was also given Federal Court approval earlier this year, allowing the two juniors to form a 100 000 oz/y producer by combining Unity’s operating Henty gold mine, in Tasmania, with Cortona’s near-term Dargues Reef project, in New South Wales.

The merged entity would have a market capitalisation of some A$90-million.

Wendt told Mining Weekly that merging was a viable option for junior gold miners looking to raise cash.

“I believe the increase in merger- related activity is due to the difficulty that many smaller companies are having with respect to raising financing for their projects. For many, the best and most sensible solution has been to merge with a cashed-up sector peer that is looking for further growth opportunities,” he said.

But it was not only Australian players checking the teeth of local gold assets.

PricewaterhousCoopers (PwC) predicted that interest in gold would continue to grow for the remainder of 2013, with new interest from Chinese investors pursuing offshore gold assets expected.

The accounting firm noted that gold accounted for the highest volume of deals in 2012, at 30%, followed by copper and diversified metals, at 14% each. In the gold sector, the average deal size during 2012 was some $60-million, PwC reported.

For Wendt, the gold sector still presented an investment opportunity.

“At the end of the day, each and every company and each and every project are different and companies must be assessed on this basis. More than ever, investors should be doing their homework on companies,” Wendt told Mining Weekly.

“While the cost of business might be higher in Australia owing to relative wage and currency levels, Australia is still the preferred destination of choice for investors and for companies. We have zero political and sovereign risk issues, which are increasingly important factors these days in many parts of the world. Companies and investors know that in Australia they won’t have governments seizing their projects.”

As for predicting the trend of the gold price, the future remained a mystery.

“Predicting gold prices or the future price of any commodity is a rather futile exercise. I cannot predict the future – no one can. My best guess is that the present downturn is a correction that has overshot,” Surbiton’s Close said.

“But then again, I could be wrong.”