Gold miners have taken a hiding on the ASX today, after the gold price plunged below US$1,400 an ounce overnight.
At the close of trading, the three largest listed ASX gold miners were down more than 3.3%, with Newcrest Mining Limited (ASX: NCM) sliding 5.3% to $15.02, Regis Resources Limited (ASX: RRL) dropping 3.3% and Evolution Mining (ASX: EVN) losing 11.2%. The rest of the sector is similarly down with just two ASX gold stocks seeing positive gains today.
Gold was last trading at US$1,392, after earlier hitting a one-month low of US$1,386.89. Prices have fallen more than 16% this year, and a whopping 28% below the record high of US$1,920 set in September 2011.
Source: Google Finance
As has been noted by many commentators, gold equities have fallen by much more than the slide in the gold price. That appears to be as much a view of where investors see the gold price in the future. Prices are expected to fall further from here, and many gold miners are being priced for oblivion. With average total production costs of over $1,000 an ounce, investors could be on the right track. Already gold miners have announced that their higher cost operations are either under review, will cease or are being mothballed, awaiting higher gold prices.
Newcrest has several low cost mines, but also one or two with production costs well above the current spot gold price. Silver Lake Resources (ASX: SLR) recently announced that it was cutting back production by 35% at its Mt Monger operation as it focuses on higher grade, lower cost ore, to maintain its margins.
The question many investors will be asking is how much lower can prices fall? Many gold miners are now trading below book value – although there are doubts about the ‘value’ of mine assets that are uneconomical. Some are also trading below net tangible assets, or ‘sell-off’ value, and some are trading at less than the value of their property, plant and equipment alone, with no value given to cash, other assets, inventories or production.
For investors wondering when might be the best time to buy in, perhaps the best clue will be when merger and acquisition activity in the sector picks up. That hasn’t happened yet, but if share prices continue sliding, it may not be far off.
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