Fed tests gold upleg
Gold’s outlook and fundamentals remain really bullish.
By early afternoon on Thursday 7.5% or over $400m had been wiped off the value of Harmony Gold Mining stock in New York, the worst performer in an index of 50 of the largest gold and silver counters. Other South African gold miners were also punished with both Anglogold Ashanti and Gold Fields down over 5%.
Some South African produces are struggling with cash outlays of $1,200/ounce – almost double the global average – thanks to a strong currency, wage disputes, power supply problems and geological issues. As the gold price eases as much as 180,000 oz of quarterly production are being put at risk.
The report by investment bank ABN Amro shows that while the average global cost to produce one ounce of gold was $620 in the first quarter, median cost for South African miners were $922/oz and 10% of mines produced gold at an average cost of $1,202/oz.
Harmony is South Africa’s third largest gold miner with a market value of some $5.2bn. The top two producers Anglogold Ashanti worth over $30bn and Gold Fields ($10bn) in afternoon trade on Thursday shed 5.2% and 5.8% respectively. Gold lost about $30/ounce on Thursday at $1,516/oz.
Reuters reported on Monday that South Africa’s National Union of Mineworkers is demanding a 14% rise in wages and has rejected an offer by the Chamber of Mines of 4%. Inflation in South Africa sits at roughly 4.3% but food prices in the country have been rising at a much greater clip.
The takeover rumour mill is working overtime as speculation about the size of Harmony Gold’s Wafi-Golpu deposit increases. Harmony has already been forced to share the planet’s potentially third largest gold and copper mine with Australia’s Newcrest Mining, selling 50% of the project for $525m three years ago. Now, as the value of Wafi-Golpu climbs – Deutsche Bank recently put it at $9.9bn – and predictions of development cost reach $5bn, other suitors may be lining up for the assets.
