Gold Miners Capex Decline a Restraint on Future Earnings

The second major factor that has the potential to have a significant medium to longer-term impact on the price of gold, is the level of capital expenditure by gold miners themselves. Since gold reached its peak of around $1900/oz during 2011, producers have massively cut expenditure budgets in the wake of the 40% price fall. The net result is that this has shortened the lifespans of many gold mines, as necessary development work hasn't been undertaken in order to access more ore. Major miners often mistime these major capex calls, reacting in knee-jerk fashion to what may be near-term or temporary factors when making major long-term judgements on production levels. We saw this during the boom, when gold miners cranked up production and were more interested in size, than overall profitability and shareholder returns. It was more about ego and the 'my mine is bigger than yours' argument. Now, the pendulum has swung too far in the other direction - and the million dollar question is what will it take for risk-averse CEOs to once again open the purse-strings?


Gavin Wendt
Founding Director
MineLife

Gavin has been a senior resources analyst following the mining and energy sectors for the past 25 years, working with Intersuisse and Fat Prophets. He is also the Executive Director, Mining & Metals with Independent Investment Research (IIR).

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.