"The fact that gold companies tend to burn cash in good or bad markets to us accentuates the industry’s poor fundamentals," says the team at Citi, noting the "easy levers" on cost cuts have been pulled, but 75% of the industry is still cash-flow negative at today's gold prices.
Besides, cutting capex and exploration costs is nice for next quarter's margins, but what happens to production and unit costs longer term (hint: one falls, the other rises)?
"Whether or not they cut capex, we see both scenarios as bad for cash flow delivery and shareholder returns, longer term. Increasing head grades in order to boost near-term results (a practice that has become common over the past year) should also have detrimental effects longer term. There seems to be no easy way out."