New rules pressure gold miners to come clean on costs

Thu Jun 27, 2013 12:13pm EDT
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By Clara Ferreira-Marques and Julie Gordon

LONDON/TORONTO, June 27 (Reuters) - The gold industry has released new guidelines for bullion miners under pressure to disclose the real economics of producing an ounce of metal, feeding a debate over the sustainability of many gold mines in a sector battered by falling prices.

Miners have seen gold prices soar since the turn of the millennium. At their height in 2011, prices were more than six times the level a decade earlier.

But costs like wages, taxes and electricity have all climbed, sometimes faster than the gold price.

The effect has been that a price drop since April - the sharpest in a generation - has pushed many mines into the red and miners to the verge of reserve writedowns.

The World Gold Council said its new guidelines would help clarify the real cost, beyond cash costs which account for only a portion of what goes into producing an ounce.

"The signal (the new cost reporting will send) is that the gold industry is probably not sustainable at its current level of output," Nick Holland, chief executive of Gold Fields, said.

"We are going to see more projects deferred, possibly marginal mines being put on care and maintenance or just shut altogether prematurely. And that's going to change the whole supply and demand fundamentals for the gold industry."

Gold equities have been battered as prices fall, with the Thomson Reuters Global Gold Index down almost 50 percent so far this year - in part, investors say, due to opaque costs.   Continued...