[miningmx.com] – PESSIMISM assailed South African gold shares for yet another day with key counters Harmony Gold and AngloGold Ashanti sliding 4.5% and 6.5% at the time of writing. The gold index was just over 5% weaker.
Gold fell to its lowest level is roughly three years and is forecast by some to test $1,000 per ounce. Already, the metal is on course for a record quarterly loss while US economic data raised fears the Federal Reserve will taper QE, Reuters said.
Gold holdings in the largest gold-backed exchange traded product (ETF), the SPDR, fell 1.6% in a day to 31,172 ounces representing the largest decline since April.
And amid the biggest write-down in the gold industry in history – Newcrest Mining’s $5.75bn impairment – the expectation is that South African gold producers will have to consider similar steps were the current gold price weakness to continue.
“They will take the lead from Newcrest. There will definitely be impairments,” said David Davis, an analyst for Standard Bank Group Securities. “The value of the firms have dropped significantly, especially Harmony Gold,” he said.
Said another analyst: “I think it could be likely for some of AngloGold’s higher-cost, older mines as well as Harmony Gold. Sibanye may take the opportunity if and when they close Beatrix West too”.
Harmony Gold said on June 18 that a portion of its Papua New Guinea mine Hidden Valley would be written down due to its poor performance lately as well as the decline in US dollar gold and silver prices.
Henrika Basterfield, a spokesperson for Harmony Gold, said the company’s plans are revisited on an annual basis and it therefore wouldn’t respond to short-term movements in the gold price. But for the 2014 financial year, the company had “conservatively planned on R400,000/kg” – the level around which the current rand gold price is hovering.
“The rand gold price is showing alot less volatility [than the dollar gold price] and so this would provide some insolation,” said Andrew Joannou of Afena Capital. “But with a cash operating margin I estimate is around 15% for most gold companies they will be burning cash after capital expenditure,” he said.
Said Davis: “There is almost no room for capital expenditure at the moment. The gold companies are very close to the wire,” he said.
Over the next two months, the gold industry will have to hammer out fresh wage increases for workers with the National Union of Mineworkers and the Associated Mineworkers & Construction Union (AMCU) looking for between 60% and 100% increases for entry-level workers.
According to the Chamber of Mines of SA’s records, AMCU represents 17.2% of the workers in gold mines and NUM 64%.
The wage negotiations in the mining industry start in early July and usually continue until early August.
AMCU has the majority of members at AngloGold Ashanti’s mines in the Witwatersrand area, as well as at Harmony’s Kusasalethu mine on the West Rand. It is also the majority union at some of Siyabande Gold’s shafts.
