ETF Securities Research Blog

Randgold highlights miners predicament

Comments by the Randgold CEO Dr Mark Bristow at yesterday’s Investing in African Mining Indaba accurately summarises the predicament facing the gold mining industry at present.

He said “We owe it to our host countries and our shareholders to do some investing and Africa still has some very exciting unexplored terrains” and that “the gold mining industry had been feeding on itself since the hedging crisis.”

Our analysis echoes Dr Bristow’s comments in that gold miners have been aggressively scaling back investments. During Gold’s heyday post credit crisis, there were periods when investment was particularly high, and over these periods there was a supply response, having risen 3.6% year-on-year up to end-2014.


But as the gold price has been falling capital expenditures (capex) have been slashed to levels not witnessed before. So what will falling capex do to supply? In 2007, after miners capex growth went briefly negative we saw year-on-year gold mine production fall by 2.8% the following year. In 2014 supply growth fell to 1.9% from 7% the previous year. and given the aggressive capex cuts since then it is very likely supply growth could turn deeply negative in the coming years.

Gold miners face other challenges too. Ore grades are deteriorating, profit margins are very low at 4% with the average historical being 12%, and despite the fall in oil prices, (an important input cost) cash costs have not fallen in response. Consequently we remain concerned for gold miners profitability in the coming years.

Yes gold miners are likely to respond positively as gold prices rise, but as Dr Bristow said “We owe it to our host countries and our shareholders to do some investing”.


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