Citi: "No Gold Company... Will Generate Free Cash Flow At Current Gold Prices"

Tyler Durden's picture

After updating their precious metals' company cost curve, Citi's ominous warning that, "a combination of rising unit costs (15% yoy), sustained high capital budgets and a falling gold price have resulted in a fast contraction in margins - so much that no gold company under our coverage will generate Free Cash Flow at spot gold."



Via Citi,

Companies are trying to adjust by cutting capex, exploration and corporate costs. But we also notice that most of the global gold cost curve is burning cash at spot levels. Further cuts are needed in the coming 12 months to make ends meet.


We view this as a return to normal for global gold equities. Given the ‘price taker’ nature of the industry, the next decade will see high-cost asset disposals, reduced capital budgets, lower exploration expenditure and balance sheet recapitalisation as companies try to survive in a lower gold price environment...

Or, China seems to be showing the world, we will see supply reductions occurring at the same time as the rolling over of 'peak suppression' of the gold price and the precious metal will realize its real fiat-numeraire-based value.

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Jam Akin's picture

Sell paper.  Buy physical.  Sleep well.

zorba THE GREEK's picture

Sell everything paper (stocks, bonds, bank balances..etc.) and buy physical gold and silver,

and sleep like a baby.

SafelyGraze's picture

"no gold company under our coverage will generate Free Cash Flow at spot gold"

and *that*, of course, is just another reason why we need to go ahead and Stop Mining Precious Metals


Spider's picture

Gold miners already producing gold at all-in costs close to $1300 in 2012 - even higher Q1

Fed forgot miners actually have to mine the stuff - VERY important for physical picture...

Bastiat's picture


Drive the miners to crap then buy 'em.  If gold will be foundation of the new reserve currency, then the banksters will want to get their grubby mitts on the production.  Alternatively make equity capital so expensive that it is prohibitive and force them into bank financing for new projects/acquistions.  Of course and bank financing will require forward sales/hedge contracts.

Troll Magnet's picture

Can't they just print gold?

Bastiat's picture

They've been doing that at Comex and LME.

Troll Magnet's picture

Well, Comex and LME need to hire a professional printer to restore everyone's faith. Bring in Bernanke and put him to work. There will be 1,000 ozt of gold for every man, woman and child on earth by the end of Bernanke's first week on the job. Problem solved!

Pinto Currency's picture


The gold price is crashing because there is a worldwide stampede into physical gold. What?!

MrPalladium's picture

Nonsense. The gold price cratered because the I-banks that sold hedges to the miners have had to pyramid their shorts as prices fell in order to keep from losing money.

Shades of portfolio insurance back in 1987.

Wait for the snap back when these short positions have to be covered.

James_Cole's picture

When comparing a hypothesis against contrary experimental evidence it is always best to:

a) weigh contrary evidence against hypothesis looking for possible flaws in hypothesis

b) ignore contrary evidence and search for evidence which confirms hypothesis

Manthong's picture

You are looking evil in the eye.

Pinto Currency's picture


Decreasing gold supply as physical gold demand increases is going to cause the gold price to collapse.

Debugas's picture

yes that can be happening simlpy because the price of gold was run up too high previously

savagegoose's picture

i have a gold card, isnt that as good as money?

DoChenRollingBearing's picture

@ Bastiat

+ 1

I have read something like this about three times now, the banksters will beat the gold miners to near-death, then buy 'em the cheap.  Disgusting.

Manthong's picture

if everybody had a mind to..  run all their "credit" to a max..

keep their cash in reserve (not in some schmuck bank)

. stop sending payments...  let it all go beyond  90 days... the fireworks would pale the tragedy of this weekend,



Go Tribe's picture

What better way to kill the idea of a gold reserve than to destroy gold mining once and for all?

LetThemEatRand's picture

I'm going all in to the Tungsten ETF.

prains's picture

Hedge that out with some SEARS stock

LetThemEatRand's picture

I would, but got all my extra cash in JCP and FB. 

NOTW777's picture

dont believe those cost figures and dont trust SA

do your own research and if you own miners get the facts for yourself

zorba THE GREEK's picture

I agree with you 100% Spider, but you could have been more concise in your analysis. 

I was referring to your first post.

SRSrocco's picture

Gold miners are the real banks and they are taking a beating because of the FED. The same thing but worse is taking place in the top silver miners. I discuss this in my newest post at the SRSrocco Report at the link below.

Al Huxley's picture

Nobody's going to save them - collateral damage in the traitorous bankers transfer of gold from west to east.

nope-1004's picture

Then why was gold and silver being mined at much lower prices in the past?  I believe the Citi (aka Shittygroup) aritcle is a complete lie via accounting gimmickery.  Any business can allocate expenses to any one or more production facilities.  For miners to pay almost no taxes, it makes total sense for them to throw as many of the expenses as possible toward the asset that is losing value, thus a tax sheltering.

Most silver is mined as a byproduct.  So it can't be that it is now "below production costs".  It may be below accounting tax loss costs, but not production.

If this isn't the case and I am wrong, then how was silver mined 10 years ago?  Have costs risen 10 fold?


Al Huxley's picture

I ask myself the same question all the time.  Why have things suddenly become so much more expensive for the miners, compared to everyone else?  But what's the alternative explanation for their shitty financial (not to mention share price) performance?

Xibalba's picture

What was the price of gas 10 years ago?  CAT's run on gas, not air...

SRSrocco's picture

NOPE... You are not getting confused with cash costs? Part of the reason why gold mining costs have more than quadrupled is due to the 4-5 fold increase of the price of oil since 2000.

Furthermore the gold miners are probably under stating costs rather than hiding profits.

TWSceptic's picture

If this isn't the case and I am wrong, then how was silver mined 10 years ago? Have costs risen 10 fold?


Not 10 fold but yes higher costs etc. i.e. inflation. That's why lower gold & silver prices are an anomaly at this point in time. They should be higher to adjust for inflation. Manipulation has distorted the market. But it's like a spring under pressure, you can only hold it down for so long. And the more pressure you apply, the stronger the release will be.

imaginalis's picture

The cost of JPM issuing paper gold is a tiny fraction of mining real gold out of the ground. 

TWSceptic's picture

Diversify between quality stocks, cash, gold, silver, (commercial) property, food & protection, pay off your debt, move outside the US if possible,


and never have to worry about anything for the rest of your life.

CPL's picture

Yup yup.  


Miners are now fed up.  This is good, for anyone with the physical in hand.  Anyone holding IOU's are up shit creek.

NOTW777's picture

I dont believe anything from Citi including that bogus chart on "costs"   I understand some of the miners understate their costs but for the last year they have been pressured to throw in everything but the kitchen sink and are treated with a different standard than favorite ben and mo-mo stocks,

No way I believe NEM and GG have the exact same cost - for example from GGs first quarter report


"All-in sustaining costs of $1,135 per ounce compared with $814 in 2012."

NOTW777's picture

NEM s first quarter report indicates all in costs at $1100-1200 - there is great variance by location;

I have seen all in costs in NA for some miners well below $1000

where was Citi when gold was $1900

mt paul's picture

Sell paper.  Buy physical.  Sleep well.

get a 26 yr old girl friend

give up on sleeping ..

Kirk2NCC1701's picture

Get a 26 y.o. girlfriend, and give up the gold too.

malikai's picture

Get a 36yr old girlfriend and keep them both.

TrumpXVI's picture

Get a 36 y.o girlfriend and lose the gold twice as fast.

Get a 46 y.o girlfriend and lose the gold even faster.

Get a 56 y.o girlfriend and lose all of it right away.

The older they get, the more motivated they are by money, and the less use they have for men!

malikai's picture

You and I have had vastly different experiences with women. :)

sgorem's picture

"We view this as a return to normal for global gold equities" GOLD EQUITIES? Is that like a piece of paper with the word "gold" printed on it numerous times so we feel all warm and fuzzy looking at it?

xtop23's picture

"This is not the supply squeeze you're looking for."

........ummm yeah. 

Bring it, you manipulating fuckwits.

stocktivity's picture

Japan up tonight...futures are up. It's all Bullshit!!!

Everyman's picture

Then how in the hell is the price of silver and gold BELOW what it takes to produce it with all costs going up such as energy, OBAMACARE adding to the labor burden, environmental regulations, on and one.


WHY THE HELL IS SOMEONE NOT IN JAIL OR FUCKING DEAD because of their criminal price fixing conduct to offset their "paper" PM losses.

FUCK 'em if they lost betting on paper, FUCK 'EM with a .357 in the ear!!!!!

francis_sawyer's picture

"WHY THE HELL IS SOMEONE NOT IN JAIL OR FUCKING DEAD because of their criminal price fixing"


francis_sawyer's picture

Keep in mind however that no 'Conspiracy Theory' ever becomes 'Conspiracy Fact'... Those silly notions have been discredited time & time again on ZH...

OneTinSoldier66's picture

I remember, it wasn't really all that long ago now, the Theory that Central Bankers around the world were going start printing money(QE), and at about the same time, was thought of as being ridiculous.


Turn those machines back on!