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Gold drops below $1,200, putting pressure on producers’ bottom line

A refiner pours bars of gold at Agnico-Eagle's Meadowbank mine facility in Meadowbank Mine, Nunavut on Wednesday, August 24, 2011.

Sean Kilpatrick/The Canadian Press

Gold dropped below $1,200 (U.S.) an ounce on Thursday, a dangerously low price for gold producers that will make it even harder for them to make a profit.

On Friday, gold languished at a six-month low and was on the edge of tipping over to a 3-1/2 year trough. Spot gold fell to a fresh six-month low of $1,185.10 an ounce on Friday, before clawing back some ground.

The world's biggest producer, Barrick Gold Corp., has managed to pare down its cost to produce an ounce of the precious metal to between $900 and $975 an ounce this year.

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But other companies are struggling to keep expenses down.

Detour Gold Corp., which started producing gold from its one mine in Northern Ontario, spent $1,214 to produce an ounce during the third quarter of the year.

Iamgold Corp., a mid-tier Canadian company which recently suspended its dividend to preserve cash, expects to spend between $1,100 and $1,200 to produce an ounce this year.

Other senior producers, Kinross Gold Corp. expects to spend between $1,100 and $1,200 and Goldcorp Inc. sees its production costs between $1,050 and $1,100 per ounce this year.

Nevertheless, gold watchers are heartened because the precious metal has not fallen to the $1,180 price reached in June.

"What is important, is that so far, gold has not dropped below the previous low," said Patricia Mohr, vice-president and commodities expert with ScotiaCapital.

"If it falls below the previous low and stays at those levels, it would trigger some mine production cuts," she said.

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Thursday's gold price slump to $1,196 an ounce in London was triggered by the U.S. Federal Reserve's decision to start winding down its economic stimulus program.

Collectively, gold companies have lost nearly half their value on the Toronto Stock Exchange since this time last year. Meanwhile the price of gold has dropped 25 per cent over the same period.

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About the Author
Economics Reporter

Rachelle Younglai is The Globe and Mail's economics reporter. More

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