Gold hit four-year lows Wednesday, imperilling producers as they run out of room to manoeuvre amid a long slump in precious metal prices.
Bullion dropped as low as $1,137.40 an ounce on Wednesday, triggering fears the yellow metal could hit $1,000 – a price that is unworkable for many miners.
The dramatic fall in gold prices comes as mining companies reported poor results for the third quarter. Kinross Gold Corp. late Wednesday reported a third-quarter loss on tax-related expenses and reduced costs, though adjusted earnings and cash flow climbed and operating costs dropped. The company cut its capital spending plan for the year.
Previously, Yamana Gold Inc. said it lost $1-billion in the quarter and recorded a hefty impairment charge on some of its Brazilian mines. Goldcorp Inc., typically a market favourite, surprised investors with a third-quarter loss and writedown due to lower precious metal grades at its Mexican mine. Allied Nevada Gold Corp. reported a loss and missed analyst expectations.
Battered shareholders are bracing for more pain. "Investors are pricing in $1,000 gold price," said John Ing, president of investment firm Maison Placements Canada. "They are dumping all companies."
As gold has plunged, producers have taken steps to slash costs, boost production efficiencies, and clean up their balance sheets. But now, as gold prices drop relentlessly, the fear for investors is that there is little more room for more cost cutting without slashing production outright.
This year, Barrick shares have lost 33 per cent to $12.50. Kinross is down 51 per cent to $2.27 a share. Yamana is off 58 per cent to $3.97. And shares of Iamgold Corp., which reports next week, have sunk 53 per cent to $1.75.
Gold is down 40 per cent from a record high of $1,900 in 2011. Investors are now dumping the precious metal in favour of interest-bearing assets after the U.S. Federal Reserve ended its economic stimulus program and the Japanese central bank said it would buy more bonds to bolster its economy.
Even companies that beat Wall Street expectations have been punished in the markets. Barrick Gold Corp., the world's biggest gold producer, reported a better than expected third-quarter profit and cut its costs forecasts. But its stock has fallen anyway.
On Wednesday, Kinross lowered its capital expenditures forecast to as low as $630-million from $675-million. It also said it could cost less to produce an ounce of gold for this year.
It's been a rough two years for Kinross. The company cut expenses, recorded writedowns, stopped work on a project in Ecuador and sold the South American deposit.
The Toronto-based miner is facing its own set of problems. Although the company is generating higher cash flow and has increased its cash position, investors are nervous about the company's operations. A third of the company's production comes from its mines in Russia, which is locked in a battle with the West over its aggression in the Ukraine.
Kinross said it spent $919 to produce an ounce of gold in the third quarter, compared with $1,082 last year. Kinross also reduced its guidance to produce an ounce of gold this year to between $950-$990 from its previous range of $950-$1,050.
"Kinross made further significant gains in reducing costs," the miner's chief executive officer Paul Rollinson said in a statement.
For the quarter, Kinross said it lost $4.3-million or nil cents a share, compared with a profit of $46.9-million or 4 cents last year. Excluding expenses related to a change in Chile's tax law, Kinross said it earned $70-million or 6 cents a share. Analysts expected adjusted earnings of 3 cents.