Engineering & Mining Journal

MAY 2019

Engineering and Mining Journal - Whether the market is copper, gold, nickel, iron ore, lead/zinc, PGM, diamonds or other commodities, E&MJ takes the lead in projecting trends, following development and reporting on the most efficient operating pr

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GOLD MINERS ROUNDUP MAY 2019 • E&MJ 31 ers E&MJ tracks. The company offers in- formation on AISC on its site going back to 2013. The spike was related to "the significant fixed overhead cost compo- nent for South African gold operations." The average realized price per oz rose $5 yoy to the the highest it has been since 2014, and $7 below the average for the company for the preceding five years. The difference between AISC and the price received in 2018 was $50, the lowest for the gold miners E&MJ tracks. In July, the deal closed wherein the min- er exchanged certain assets for a 38% stake in DRDGold, described as a midtier gold miner with 3.82 million oz in reserves. That bumped up total gold output for Sibanye by more than 60,000 oz on the year. The company reported mineral reserves of 16.6 million oz, as of December 31, 2018. It declined to report guidance num- bers until the resolution of the Association of Mineworkers and Construction Union strike, which was moving through the courts as of this writing, is resolved and reported. 2019 Guidance The price of gold dipped hard in 2018 as the Federal Reserve made key rate hikes totaling 100 basis points over the course of the year and as the other major central banks of the world made hawkish moves and sounds. Alongside copper prices and stocks worldwide, gold briefly appeared to be on the brink of entering a bear market. It then moved upward slightly in Q4. After the dust settled, news reports revealed Q4 was when the Fed began se- riously jettisoning some of the assets it ac- quired during the U.S. stock market melt- down a decade ago. The action benefitted gold slightly, but almost produced a Christ- mas panic on Wall Street. Early in 2019, the Fed got back in touch with its dove- side, easing its rhetoric, and more recently, suggesting no more rate hikes for 2019. Prices across asset classes, gold included, stabilized and many inched skyward. Key rates set by the central banks of the world are not the only factors driving gold price. They are simply the biggest. Other factors include "the sale or pur- chase of gold by central banks and finan- cial institutions, exchange rates, inflation or deflation, (all three of which are central bank policy-driven,) global and regional supply and demand, and the political and economic conditions of major gold-pro- ducing and gold-consuming countries throughout the world," Goldcorp report- ed. "A steady tightening of U.S. mone- tary policy provided the backdrop for gold price movement in 2018, with the U.S. Federal Reserve raising benchmark inter- est rates four times during the year, for a total of nine such increases since the current cycle began three years ago." The price of gold is not the only factor driving production efforts at the world's largest mines. But it is the biggest. New- mont reports that "decreases in the market price of gold and copper can also signifi- cantly affect the value of our product inven- tory, stockpiles and leach pads, and it may be necessary to record a write-down to the net realizable value." Polyus made a similar admission. "The group's results are signifi- cantly affected by movements in the price of gold and currency exchange rates, princi- pally the rubble to dollar rate," it reported. "The market price of gold is a significant factor that influences the group's profitabil- ity and operating cash flow generation." Therefore, one likely reason gold produc- tion tanked as hard as it did in 2018 is the major companies all anticipated the key rate hikes and the impact on price and paced their production efforts accordingly. This year will bring more of the same in the sense that corporate officers will try to predict key rate decisions by the central banks and will set plans accordingly. "As 2019 gets under way, gold prices are holding on to recent gains helped by a softer U.S. dollar and reports of several central banks around the world increasing their gold reserves," Gold- corp reported. "Most notably, China recent- ly announced an increase in gold reserves during December 2018 marking their first reported increase in over two years." Rus- sia lately has been in the news for central bank purchases of gold as the country, and a handful of others, seek to de-dollarize. "Any continuation of official sector purchases is expected to help to provide support for the precious metal; and while interest rate policy in the U.S. will continue to play a major role in gold's fortunes over the year ahead, an increasing number of financial market commentators are questioning the speed with which rates have been increased throughout this cycle, leading to calls for a pause in the process," it said. Dovish central bankers could assure continued lowish rates, which will guaran- tee the flow of liquidity in global markets and provide at least gold price stability for much of 2019. If the global economy turns downward symmetrically, as some, including the International Monetary Fund, are warning it could, and as copper prices and the U.S. Treasury yield curve have repeatedly suggested it could, the central banks of the world would likely, in unison, cut rates to further stoke liquidity, since that worked so well a decade ago. The one-two punch of lowered rates amid the fear prompted by a global economic downturn would be a boon for gold as a safe-haven asset. Conversely, a stronger and rising dollar resulting from tighter li- quidity amid generally upbeat economic news would be bearish for gold prices. Goldcorp's Red Lake gold mine in Ontario produces 235,000 oz last year.

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