“The largest gold companies are seeking to lure investors back to the $300 billion industry after a string of money-losing multibillion-dollar takeovers and over-budget projects. Barrick and its competitors are vowing to focus on margins and to get a grip on soaring production costs, rather than boosting output”.
So commented Bloomberg at the end of last month (27 February 2013), pointing out that: “The average cash cost of 10 of the biggest gold miners was $694 an ounce in the third quarter [of 2012], 49 percent higher than in the same period two years earlier…The average gold price rose 35 percent in the same comparison”.
Put bluntly, the big gold diggers have been effectively cheating the rest of us by underestimating the actual expense involved in extracting each ounce of the gilded metal.
Little wonder, then, that their profits have been falling, and that – instead of buying company shares – investors have been putting their cash into Exchange Traded Funds (ETFs), based on the physical holding of gold bullion.
According to data compiled by Bloomberg: “The weight of gold behind those ETFs, which include the $64.9 billion SPDR Gold Trust, has quadrupled to 2,530 tons since the start of 2007”.
However, Goldman Sachs Group, reporting on February 25th, isn’t so sure that this particular rally will last, saying: “[T]he boom in ETFs may now be at an end, with physical holdings poised for the biggest monthly decline since 2008. The gold cycle has probably turned as the recovery in the U.S. economy gathers momentum and investment holdings shrink”.
Moreover, says Bloomberg: “[I]t’s not yet clear whether gold miners will benefit from the change in sentiment”.
So – amid a lot uncertainty all round, now come these belated attempts by the industry leaders to “come clean on costs”.
Wearing a golden heart on his sleeve, J Paul Rollinson, the new CEO of Kinross Gold, in mid-February admitted that: “Everyone was trying to run through the funnel of building these new projects as big as you can, as fast as you can”.
There’s surely no need to point out what this has meant in terms of destructive impacts on people and environment, prompted by promotion of such falsely-predicated, bullish, market sentiments.
What now? The corporate bullies are promising to cut their mining suits to fit the true costs they bear.
Except that, according to the London-based World Gold Council, there’s “no universal agreement” as to exactly what these costs are.
And that leaves the door open to further conniving – and conning- on the part of the big miners.
On February 27th, Dominican Republic President, Danilo Medina, announced that a contract with Barrick – the world’s leading gold producer – to develop a US$4 billion mine was “unacceptable” and has to be revised to provide more benefit to the country.
This is similar to policy statements made by many other governments in recent years. But, now, the likes of Barrick have a potential new weapon in their armoury with which to beat off such urgent and legitimate demands.
Nick Holland, CEO of Gold Fields, says the newly-revealed relative “poverty”, at the heart of gold miners’ own governance,”could be positive for getting more realism into governments about how much tax they really should be levying on us.
“There’s not the super profits that you’d [sic] have them believe you’re making.”
It all makes for a somewhat confusing and uncertain picture.
But one thing’s for sure: the old gold dogs aren’t going to lie down yet, without putting up a fight.