To:long-gone who wrote (272) From: John Barendrecht Monday, Jul 7, 1997 12:39 PM Respond to of 80032
Few S. Africa gold mines may weather price fall By Melanie Cheary
JOHANNESBURG, July 7 (Reuter) - Only five South African gold mines could produce gold profitably if the bullion price fell to below $300 an ounce, analysts said on Monday.
And at current levels, about 60 percent of world production was being made at a loss, they said.
``It's very, very bad news. They (the traders) are calling it down to below $300 and if it does go to that there will be only three, four or maybe five mines in South Africa (which can produce profitably),'' said Leon Esterhuizen, gold analyst at Societe Generale (SOGN.PA) Frankel Pollak.
``At these levels, around $320, some 60 percent of world production is coming in at a loss,'' he added. Total world production last year was 2,346 tonnes.
The gold price has plunged to 12-year lows in shock after news the Australian central bank sold 167 tonnes of gold reserves over the last six months. It fixed in London at $318.75 an ounce on Monday, its lowest since December 1985.
The near term promises little relief with technical analysts in London calling $310 the metal's next support level.
``I've been forecasting below $300,'' said independent gold hedging specialist Jessica Cross, warning that if producers hedged to lock in better prices this could put further downward pressure on the price.
South African producers have voiced surprise at the metal's fall.
``I would not have expected it to reach this level. The truth is that the gold price is unforecastable,'' said Kelvin Williams, Anglo American Corp of South Africa Ltd's (ANGL.J)marketing director.
``The distressing irony in the gold market is that the central bank sales themselves are well managed in a fashion which causes little, if any effect on the gold price. Only after the sales are completed and announced do we see price falling as speculators compete to increase their short positions,'' he said.
Analysts said Beatrix Mines Ltd (BETJ.J), Driefontein Consolidated Ltd (DRFN.J), HJ Joel Gold Mining Co Ltd (JOEJ.J), Elandsrand Gold Mining Co Ltd (ELRD.J)and Vaal Reefs Exploration and Mining Co Ltd (VAAL.J)were gold mines most likely to weather the current hard times.
Their well-managed cost structures and the grades mined were seen sustaining them longer than their marginal cousins.
Anglo, the world's largest gold producer, is seen weathering the current crisis due to its successful hedging programme.
``I think we would certainly sustain quite a viable price,'' Williams said.
Generally, mines that hedge could escape relatively unscathed for 18 to 20 months, analysts said.
But those with skinny margins and no forward protection were seen severely punished, raising the spectre of further job mine job cuts. Already one South African mine has ceased operations due to the bullion price.
Marginal mine specialist Randgold and Exploration Co Ltd (RNGJN.J), feeling the pain, announced earlier on Monday the closure of one of its East Rand Proprietary Mines Ltd's (ERPL.J) wholly-owned subsidiary Benoni Gold Mining Co Ltd.
``The decision was prompted by the prevailing low gold price and operating losses incurred by the company over the past two months,'' it said in a statement.
South Africa produces the majority of the world's gold with an output last year of 495 tonnes and expected this year at around 500 tonnes. The United States is second, producing 329 tonnes in 1996 and Australia third with 289 tonnes last year.
``The Australians have a similar cost structure to ourselves and so the first mines to close down would be South Africans and Australians,'' SocGen's Esterhuizen said.
But other analysts said that shutting down operations was a complicated business and would not happen overnight.
``Even if gold fell to $250 an ounce it would take at least a year or so before any significant mines closed down,'' said Dave Giese at Smith Borkhum Hare.
With much anxiety still in the market surrounding central bank gold sales, Anglo's Williams said that traders would likely react in a similarly negative way to another sales announcement from a central bank.
But SocGen's Esterhuizen asked whether central banks would allow the total worldwide gold industry to go to ruin.
Market Data 
Markets 
AI
