Half of the gold coming from mines may not be viable at current prices, underscoring the industry’s need for consolidation and output cuts, according to the best- performing producer of the metal in the past decade.
“The more we continue to produce unprofitable gold, the more pressure we put on the gold price,” Randgold Resources Ltd. Chief Executive Officer Mark Bristow said in an interview in Toronto on Friday. “In the medium term, it’s a very bullish outlook for the gold industry. The question is, how long are we going to supply it with unprofitable gold?”
Gold fell to a five-year low on Friday as a rising dollar and speculation that U.S. policy makers will boost interest rates next month curbed the appeal of bullion as a store of value. While industrial metal producers have promised output cuts, “we don’t have that psyche in the gold industry, we just send it off our mine and somebody buys it,” Bristow said.
Gold miners buffeted by the drop in prices are shortening the life of mines by focusing only on the best quality ore, a practice known as high grading, which will restrict future output and support higher prices, according to Bristow. He said in a presentation to bankers in Toronto that the industry life span is down to about five years because companies have been aggressively high grading at the expense of future production.
“The industry has moved away from looking at optimal life of mines because everyone is trying to demonstrate short-term delivery,” he said in the interview after the presentation. “Where is all this value that people promised in the gold industry? It’s not there.”
Traditionally, the industry would address this through “survival” mergers, Bristow said.
Bristow said earlier this month that Randgold continues to look for projects to buy, but has been frustrated by companies excessively pricing assets. In Friday’s interview, he said Randgold approached two parties this year about purchasing assets, but walked away because the prices were too high.
London-listed Randgold’s 10-year annualized return of 19 percent is the best performance among major producers tracked by Bloomberg.
Gold futures for February delivery declined 1.3 percent to settle at $1,056.20 an ounce on the Comex in New York. Earlier, the price fell to $1,051.60, the lowest since February 2010.
~Bloomberg [Danielle Bochove]