What are the strategies expected from gold producers to sustain this low price environment? (Continued from Part Three.)
More Mergers and Acquisitions?
To be able to sustain itself (especially its profitability) in this low gold price environment, the gold mining industry may see some consolidation in the coming one to two years.
Many mid-tier and junior gold producers possess some of the highest-grade reserves of gold and with valuation of these assets revised downwards due to fall in gold price, some of the well-placed miners may be presented with an excellent opportunity to plan for mergers or acquire strategic assets.
Having economies of scale is likely to be one of the key factors in ensuring sustainability for many gold producers.
What about cost cuts, layoffs, production cuts?
Traditionally mining companies have responded to sustained low-price situations with budgeted cuts in capital expenditure towards exploration and mine expansions, apart from lowering direct costs and overheads resulting in mass layoffs and scaling down mine output.
In 2013, Barrick Gold Corp. announced its plan to reduce its corporate staff by 400 of its 25,000 global workforce, laying off employees in Canada, the US and Australia, while Newmont and AngloGold Ashanti have indicated similar moves for their operations in the US and Ghana respectively.
While layoffs may help reduce costs in the short term, recruiting skilled staff like geologists and other mine staff during times of expansion may be difficult. Shortfall in exploration activities may be detrimental to the sustainability of gold producers in the long term, as current resources under operation get depleted over the years.
Restructuring of production portfolio and enhancing financial flexibility?
While high-cost mines have been facing production cutbacks in response to low realized prices going into 2014-15, we may see more and more gold miners scaling down or halting their marginal operations.
However, producers are likely to shift focus to low cost mines in their efforts to remain cash positive.
More on restructuring to be continued in Part Five.
MetalMiner welcomes guest contributor Moonmoon Basu, a senior research analyst at Beroe Inc., tracking base metals & precious metals for over two years and specializing in price forecasting. Beroe is the premier global provider of customized procurement services specializing in sourcing, supply chain visibility, financial risk analysis and environmental impact to Fortune 500 organizations. With nearly 400 dedicated procurement specialists in 38 domains, across 9 industries, Beroe proactively invests in knowledge assets to build valuable, real-time procurement insight.