Investment legend Warren Buffett once quipped: “Only when the tide goes out do you discover who's been swimming naked.”
For gold miners, the tide is receding at pace after the metal’s price slid to new five-year lows yesterday.
Mining shares plummeted with analysts commenting that many of the giants are unprepared for the drop below US$1,100.
Canadian company Barrick Gold, the world's largest miner of gold, fell 15% to a 25-year low while Yamana Gold, another large producer, fell 11%, its lowest level in a decade.
Newmont Mining dropped 12%, while Kinross Gold Corporation fell 12% to an all-time low US$1.67.
London-based producers fared better than their larger North American peers, Investec said, because they have no net debt.
The broker cited Randgold (LON:RRS), Centamin (LON:CEY) and Acacia (LON:ACA) as examples.
In the absence of significant demand, miners have started, and are trying to accelerate, cost cutting measures.
What’s worrying investors is how much fat is left to cut after several rounds of cost cuts already.
Russia-miner Petropavlovsk (LON:POG) - already seen as a low cost producer - announced today that it has begun another round of cuts to lower its cash costs from US$700 per ounce to US$600.
Martin Potts at finnCap said, though, it is not the juniors that need to worry.
“If they [junior gold miners] are actually in production, the chances are that they are operating with quite a considerable margin.”
“We had Shanta Gold (LON:SHG) reporting this morning and they seem to be doing okay” he said.
Shanta boosted gold production and cut costs at its New Luika gold mine during the second quarter.
Shanta expects all-in costs to drop dramatically to between US$650 and US$680 per ounce.
Barrick Gold Corp had an all-in sustaining cost of $864 an ounce last year, while Newmont Mining Corp's first quarter all-in sustaining cost (AISC) for gold was $849 an ounce.
AISC reflects the full marginal cost of gold mining, including ongoing capital expenditure, indirect costs and overheads.
According to Potts at finnCap, most at risk are the deep mining South African companies, which, as they have to mine at depths of more than 1,000m, have very high costs.
“The only thing keeping them afloat is the depreciating rand against other currencies” he said.
As gold is bought and sold in dollars, the lower rand helps the miners as workforce costs are lower.
Gold rebounded slightly today rising US$8 to US$1,105, but that compares with an all-time high of around US$1,920 in 2011.