Gold miners have worked hard to cut costs to offset a falling gold price, but Goldman Sachs expects the price to fall again in 2014 leaving them with limited options.
According to the US broker, cost cutting initiatives undertaken by the gold companies it covers have led to many mines with cash costs now below the spot gold price.
Goldman, though, expects the spot price in 2014 to fall to $1,144/oz, at which level more than 50% of these miners would burn cash.
There is little more they can do to reduce costs further given that most restructuring has been completed and further reduction in sustaining capex would reduce the face availability for mining in the future.
“Miners can deal with c.$1,300/oz but a sustained lower level would need another round of restructuring, in our view – most likely mine closures and more severe cost reduction.”
As a result, Goldman only has two buy recommendations and none among the London listed companies.
RandGold Resources (LON:RRS neutral) remains one of the best-positioned names with low total costs, strong near-term growth and a strong balance sheet, but on its price outlook Goldman Sachs does not see any strong catalyst for the shares that is not already priced other than a higher gold price and that would benefit higher cost miners more.
However, higher cost, more highly geared and negative free cash flow such as African Barrick (LON:ABG) are sells, according to Goldman.