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,

...as 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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Sun, 07/07/2013 - 20:32 | 3729298 Jam Akin
Jam Akin's picture

Sell paper.  Buy physical.  Sleep well.

Sun, 07/07/2013 - 20:38 | 3729310 zorba THE GREEK
zorba THE GREEK's picture

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

and sleep like a baby.

Sun, 07/07/2013 - 20:41 | 3729323 Spider
Spider's picture

t

Sun, 07/07/2013 - 20:44 | 3729328 SafelyGraze
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"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

 

Sun, 07/07/2013 - 20:47 | 3729335 Spider
Spider's picture

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

http://seekingalpha.com/article/1346991-the-true-all-in-cost-to-mine-gold-complete-2012-figures

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

Sun, 07/07/2013 - 21:12 | 3729419 Bastiat
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.

Sun, 07/07/2013 - 21:17 | 3729435 Troll Magnet
Troll Magnet's picture

Can't they just print gold?

Sun, 07/07/2013 - 21:24 | 3729454 Bastiat
Bastiat's picture

They've been doing that at Comex and LME.

Sun, 07/07/2013 - 21:43 | 3729506 Troll Magnet
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!

Sun, 07/07/2013 - 23:04 | 3729728 Pinto Currency
Pinto Currency's picture

 

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

http://www.goldminerpulse.com/v/shanghaiGoldExchangePhysicalDelivery.php

Mon, 07/08/2013 - 00:22 | 3729897 MrPalladium
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.

Mon, 07/08/2013 - 01:34 | 3729996 James_Cole
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

Mon, 07/08/2013 - 02:23 | 3730052 Manthong
Manthong's picture

You are looking evil in the eye.

Mon, 07/08/2013 - 06:50 | 3730186 Pinto Currency
Pinto Currency's picture

 

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

Mon, 07/08/2013 - 02:02 | 3730028 Debugas
Debugas's picture

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

Mon, 07/08/2013 - 04:46 | 3730123 savagegoose
savagegoose's picture

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

Mon, 07/08/2013 - 01:08 | 3729971 DoChenRollingBearing
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.

Mon, 07/08/2013 - 05:04 | 3730131 Manthong
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,

BOOM.

 

Sun, 07/07/2013 - 21:40 | 3729497 Go Tribe
Go Tribe's picture

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

Sun, 07/07/2013 - 22:40 | 3729657 LetThemEatRand
LetThemEatRand's picture

I'm going all in to the Tungsten ETF.

Sun, 07/07/2013 - 22:56 | 3729708 prains
prains's picture

Hedge that out with some SEARS stock

Sun, 07/07/2013 - 23:31 | 3729798 LetThemEatRand
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I would, but got all my extra cash in JCP and FB. 

Sun, 07/07/2013 - 23:11 | 3729746 NOTW777
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

Sun, 07/07/2013 - 21:02 | 3729337 zorba THE GREEK
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I agree with you 100% Spider, but you could have been more concise in your analysis. 

I was referring to your first post.

Sun, 07/07/2013 - 21:06 | 3729399 SRSrocco
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.

http://srsroccoreport.com/silver-mining-costs-exposed-cash-cost-fallacy/...

Sun, 07/07/2013 - 21:15 | 3729431 Al Huxley
Al Huxley's picture

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

Sun, 07/07/2013 - 22:13 | 3729583 nope-1004
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?

 

Sun, 07/07/2013 - 22:20 | 3729601 Al Huxley
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?

Sun, 07/07/2013 - 23:04 | 3729727 Xibalba
Xibalba's picture

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

Mon, 07/08/2013 - 01:48 | 3730005 SRSrocco
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.

Mon, 07/08/2013 - 04:56 | 3730125 TWSceptic
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.

Mon, 07/08/2013 - 05:42 | 3730152 imaginalis
imaginalis's picture

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

Mon, 07/08/2013 - 04:43 | 3730115 TWSceptic
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.

Sun, 07/07/2013 - 21:07 | 3729402 CPL
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.

Sun, 07/07/2013 - 22:40 | 3729658 NOTW777
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."

Sun, 07/07/2013 - 22:49 | 3729683 NOTW777
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

Sun, 07/07/2013 - 22:53 | 3729697 mt paul
mt paul's picture

Sell paper.  Buy physical.  Sleep well.


get a 26 yr old girl friend

give up on sleeping ..

Mon, 07/08/2013 - 02:07 | 3730033 Kirk2NCC1701
Kirk2NCC1701's picture

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

Mon, 07/08/2013 - 06:14 | 3730177 malikai
malikai's picture

Get a 36yr old girlfriend and keep them both.

Mon, 07/08/2013 - 08:42 | 3730340 TrumpXVI
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!

Mon, 07/08/2013 - 09:07 | 3730392 malikai
malikai's picture

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

Sun, 07/07/2013 - 23:37 | 3729810 sgorem
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?

Sun, 07/07/2013 - 23:42 | 3729814 xtop23
xtop23's picture

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

........ummm yeah. 

Bring it, you manipulating fuckwits.

Sun, 07/07/2013 - 20:36 | 3729305 Chupacabra-322
Chupacabra-322's picture

Keep stack'n.

Sun, 07/07/2013 - 20:38 | 3729309 stocktivity
stocktivity's picture

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

Sun, 07/07/2013 - 20:36 | 3729306 Everyman
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!!!!!

Sun, 07/07/2013 - 20:39 | 3729315 francis_sawyer
francis_sawyer's picture

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

~~~

Sun, 07/07/2013 - 20:43 | 3729325 zorba THE GREEK
zorba THE GREEK's picture

+1 Francis

Sun, 07/07/2013 - 20:49 | 3729338 francis_sawyer
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Keep in mind however that no 'Conspiracy Theory' ever becomes 'Conspiracy Fact'... Those silly notions have been discredited time & time again on ZH...

Sun, 07/07/2013 - 21:55 | 3729540 OneTinSoldier66
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!

http://www.youtube.com/watch?v=B71HytDmEso

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