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At current prices, 15% of global gold miners probably are now underwater, according to Nomura's...

At current prices, 15% of global gold miners probably are now underwater, according to Nomura's Tyler Broda, who also predicts gold could fall to as low as $1,000/oz. this year. Companies relying on a single asset and those in Africa, already struggling with deteriorating geopolitical risk, will find it more difficult to convince banks to fund projects, Broda says.
Comments (17)
  • When banks fund fewer projects - opportunities knock for funding from streamers. SAND and SLW should gain some new deals.
    18 Apr 2013, 10:22 AM Reply Like
  • Yes Mercy, have to agree with you. Love the streaming business model. Long SAND.
    18 Apr 2013, 11:18 AM Reply Like
  • Until SLW gets into being overleveraged itself...
    18 Apr 2013, 11:12 AM Reply Like
  • Yes something to watch especially after VALE deal.
    18 Apr 2013, 11:16 AM Reply Like
  • Does anyone know of a good source for determining which companies might be in the 15% category which are at risk. In other words, is there a site or a report that might contain this information (as opposed to looking at a lot of individual corporate reports)? I'm long SAND, SLW and RGLD but want to be careful with the actual miners, especially the juniors.
    18 Apr 2013, 11:27 AM Reply Like
  • blackberryman
    Just a note to blackberryman: I bought DGZ yesterday or day before @14.03, it is 13.95 now, perhaps a blip on an odd day, or even a turn day. I sold out of SPY... Methinks stocks are hot and getting hotter, not good, in hot water, if you get my meaning.
    Watch my stock talks.
    Capt. Brian
    The Lost Navigator
    18 Apr 2013, 01:01 PM Reply Like
  • Why would gold drop to $1000 when demand from central banks at current prices outstrips global production by a multiple of 2? With German repatriating and China/India/Russia and now potentially Switzerland all looking to buy up to 1000 tonnes per annum the supply/demand equation looks very skewed to the buy side with 2500 tonnes of output (less at current prices). Also at $1000 there is not 1 producer in the world who will be profitable. ABX and GG all in cash costs are $1000-$1100. Not to mention the fact that governments are literally stealing money from under your nose in the case of Cyprus or by generating negative real interest rates in the case of the US. Maybe I'm living in the clouds but I would have thought the recent capitulation in the Gold price marks a reasonable entry point for those interested in capital preservation and concerned about the debasement of currencies and the prospect of worthless fiat currency.
    18 Apr 2013, 11:40 AM Reply Like
  • @ Hannox, manipulation from stated entities to buy at lower prices. Also, Germany is "trying" to repatriate it's gold from the US to no avail. They cannot even get a look at it, at last report.
    18 Apr 2013, 11:52 AM Reply Like
  • Also Hannox I don't underestimate the recent impact of margin calls on gold selling as well as position covering by traders with Japanese bonds at risk.
    18 Apr 2013, 12:05 PM Reply Like
  • Thanks. Keep telling us this info. Links to your demand side info would be appreciated. You have it exactly. Is anyone listening to you? Your demand info is the closest reality I have seen since last fall. Please keep it coming.
    18 Apr 2013, 05:36 PM Reply Like
  • All of the producers are hedging when they need to. Financial crapola is now nearly irrelevant with hedging. If you have some real supporting facts, now would be the time to provide them.
    18 Apr 2013, 05:39 PM Reply Like
  • I've read all of this stuff about gold and it seems to me like the price of gold fluctuates.

     

    Who would buy gold if the price is low?
    18 Apr 2013, 01:12 PM Reply Like
  • If gold prices are low:

     

    Nearly everyone with disposable income would buy gold rather than holding currency. What are you smoking or which planet are you from?
    18 Apr 2013, 05:43 PM Reply Like
  • Me: spent 25 years in MIC, Systems analysis, System staff engineer, Long Range Planning, also ran my own business for 27 years.

     

    The thrust of the article is correct, the cost per ounce of mining gold has risen significantly, and the mining companies that unthinkingly made speculative investments based on the projection of gold rising to $2000 plus per ounce are now close to or are already operating at a loss.
    Those with good corporate governance, who did serious feasibility studies that projected profits based on reasonable market price expectations and those that employed long range strategy such as a mining approach that withdrew less gold per year thereby extending the useful life of the mines will survive, but consolidation or bankruptcy appears to be imminent for several.

     

    The GDX basket has declined significantly, the CEO of it's largest holding ABX has apologized and promised to study future acquisitions more carefully.
    The company that has kept it's cost per ounce at the lowest level AUY is suffering with the decline of the gold price, but I suspect will
    or already is below it's realistic value.

     

    The finished product buyers GLD,SLV,SAND,SLW that contract to buy at a dscount may well be the best way to go at this point.

     

    current positions in AUY, SLV, SLW, and sadly ABX
    18 Apr 2013, 03:53 PM Reply Like
  • Dream on. Holding the source is almost always the smartest move;
    especially if they have and keep their house in order.

     

    Even though people bash, slander, or otherwise debase sources to create noise and distractions for the purpose of attempted financial manipulation. Or the normal world for now forces most people to question sources unless you have done your homework. Have you done yours?
    18 Apr 2013, 05:48 PM Reply Like
  • On ABX I think you have the potential for an activist investor to step up to the plate and force management into splitting the company into 2 seperate entities: North America and International. The NA division (FY13 will generate 4.5m ounces @ all in cash costs of sub $800) on a stand alone basis is worth more than NEM (5m @ $1100-$1200) and GG (2.5-3m @ $1000-$1100) so the conglomerate nature of ABX is clearly having a detrimental effect on the valuation. This combined with some ill timed and overpriced acquisition/project overruns over the past 3 years and a more strained balance sheet (debt/EBITDA of 1.5x although 65% of debt out is not redeemable til 2018+). have resulted in a sustained period of relative underperformance..Howe... notwithstanding this, the recent capitulation is the most brutal I have witnessed in my investment career and I have run various prop trading desks for 15 years. I think management have to refocus all their energy on maximising free cash flow and whilst the gold price is trading sub $1500 slashing discretionary capex. Moreover, they should use this cash to embark on a opportunistic and aggressive sharebuyback programme that would benefit existing shareholders for years to come. If you believe in the merits of gold and see the current collapse as an opportunity rather than a precursor to further falls ABX currently represents a very cheap option. In a blue skies environment with Gold trading at $1700 ABX should generate FCF of $5bn in 2015 (assuming Puasca Lama is up and running) which gives a valuation of 3.4x FCF. At $1400 they should generate FCF of $2.5bn which gives a multiple of 7.2x. I guess its all a function of your view on Gold. Best of luck
    19 Apr 2013, 10:53 AM Reply Like
  • Thanks. Sounds pretty realistic. It appears you have done your homework.
    19 Apr 2013, 01:32 PM Reply Like
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