Gold prices may continue to fall over next 2-3 years
Baku, April 19 (AZERTAC). South African miners are the most exposed to the risk of falling gold pricesbecause of production costs that are already high and rising fast, Fitch Ratings says.
While prices could recover quickly if worries over the eurozone rise further, our base case is for prices to fall over the next two or three years. Annual percentage losses in the low to mid-teens over the next three years could be enough to put pressure on some ratings unless miners can find cost savings.
The cost of production for South African miners has been propelled much faster than for other producers, due to labour-intensive mining practices combined with sharply rising wages.
Substantial increases in energy costs have also added to the trend. The impact has been masked by rising prices in recent years, but is now likely to be much more obvious in company results as gold prices decline.
South Africa`s Harmony Gold is among those most exposed because it has the highest percentage of labour costs among its peers. In contrast, miners that use less labour-intensive practices - such as open-pit mining - are better positioned to cope with falling prices. Russia`s Polyus is a good example - the group also benefits from higher-quality gold deposits than many rivals, which helped contain growth in average cash production costs to 8% in 2012.
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