Citi: Cost cuts help gold miners now, but trouble ahead


Austerity moves clearly have helped gold miners navigate through the lower price environment, but Citigroup analysts warn that further belt-tightening will be difficult, and may even hurt long-term prospects.

Citi cautions that the slowdown in capex invariably will result in a fall in production, which in turn will lead to a faster rise in unit costs; also, the recent increase in head grades across the global mining space is an unsustainable mining practice that can have further detrimental effects on future mine plans and ore bodies.

Among miners Citi sees as most vulnerable to a low gold price environment are Sibanye Gold (NYSE:SBGL), Harmony Gold (NYSE:HMY) and DRDGOLD (NYSE:DRD), which the least vulnerable are Goldcorp (NYSE:GG), Barrick Gold (NYSE:ABX), Yamana (NYSE:AUY), Medusa Mining (OTC:MDSMF) and OceanaGold (OTCPK:OCANF).

ETFs: GDX, NUGT, DUST, GLDX, RING, GGGG, PSAU

Comments (8)
  • User 16336642
    , contributor
    Comments (58) | Send Message
     
    Fall in Capex? Well gee Citi, did you state the same about tech? Where is the capex there? Oh that's right, the CEOs are too busy buying their stock!
    13 Aug 2014, 12:34 PM Reply Like
  • jzut
    , contributor
    Comments (128) | Send Message
     
    Yesterday Oppenheimer wrote in 24/7 Wallstreet that GDX was their top technical trade. Who is right. Call me when gold is at 1190 or below.
    13 Aug 2014, 12:44 PM Reply Like
  • Hard Asset Investments
    , contributor
    Comments (234) | Send Message
     
    'Citi cautions that the slowdown in capex invariably will result in a fall in production," which will lead to a higher gold price...
    13 Aug 2014, 01:10 PM Reply Like
  • King Rat
    , contributor
    Comments (1550) | Send Message
     
    What would Citi be saying if they DID NOT tighten their belts?

     

    There are two types of capex.
    Type 1 is maintenance. Nobody is falling below that level.
    Type 2 is expansion. Everybody is cutting back. Does that not make sense? If you value the product you sell to be more valuable than the market will pay you, will you not produce less of it now?

     

    Besides, these areas have been holding gold for how many years now, geologically speaking? Does Citi fear the gold might spirit itself away if miners wait 5 years longer to extract it?
    13 Aug 2014, 01:10 PM Reply Like
  • Ronald McDonald
    , contributor
    Comments (56) | Send Message
     
    You can't continue to gut orebodies for very long and if you do you sterilize what was previously profitable ore in a slightly higher metals price environment thus killing your reserve base for short term gain and long term pain.
    13 Aug 2014, 09:20 PM Reply Like
  • robin steel
    , contributor
    Comments (147) | Send Message
     
    I must wonder why we don't hear anyone talking about a slow down in PM production in China, nor about the "byproduct" from the biggest miners, BHP & RIO...It is in their interest to short "Paper Gold & Silver", while buying and stockpiling the "Physical" while waiting for the IMF to become the world's bank and adjust the "reserve currency basket" away from the Dollar.
    In the meantime, we must endure the "petro dollar war" that is going on between the US, and BRICS, and the sanctions and disruptions that are centered in Ukraine, and Iran, that create the much desired "volatility" in all of the markets.
    So, despite fines and price drops among the TBTF banks, they have plenty of money for HF trading that has decimated the average investors wealth...JPM, working as a wing of the Treasury; but hedging for the day that the Dollar crashes, when China gets it's way with the IMF; seems to be the game plan...
    I'm pretty sure that most of the Oligarchs have nice homes in Shanghai and Hong Kong to augment the ranches in Patagonia, and vaults in Switzerland once the Pressure to prosecute grows in the USA...Gold, Silver, and Congresspeople are the things to own these days...
    5 Sep 2014, 01:37 PM Reply Like
  • Billionaire888
    , contributor
    Comments (759) | Send Message
     
    To all of the above commentators: What's it like to invest based on conspiracy theories and than lose all of your money? Do you thereafter double down on your conspiracy theory and blame your huge loss on the conspirators or do you regain your sanity after the realization that you lost all of your hard earned money?
    12 Sep 2014, 04:59 PM Reply Like
  • robin steel
    , contributor
    Comments (147) | Send Message
     
    BILL888 as a point, and It is that as long as there is a 100:1 ratio of paper based on gold, the pressure toward lower prices will continue. However, if there is a shortage of reserve gold in any major countries vaults (perhaps Switzerland will be forced to divulge it's reserve with the vote scheduled soon) it may trigger a house of cards among many other countries that could give a huge boost to prices.
    I assume that he is smirking about people who bought bullion at the high, and have suffered losses if they have sold, but I don't think that there are too many small investors that will do that and the big private investors are prudent to allocate 20% or less of their billion dollar portfolios to Gold and baring a huge crash in all markets, they will always have the ability to sell one market for the next...If you don't think that they talk about it at Davos, then there would be no "conspiracy in gold", but they do...and it shows. What other market prognosticators have such a good record? let's hope they are right so we can all buy in at "$850/oz"...or would you hold out for $42.50? Isn't that the "real" price?
    13 Sep 2014, 08:44 PM Reply Like
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