With gold prices posting the best first half in almost four decades, the coming round of earnings reports may provide signs miners are preparing to ease their collective death grip on spending.
Big producers had focused on deferring projects, curtailing operations and otherwise slashing costs and debt as prices declined for three years in a row. That has raised concern companies won’t be able to maintain current output levels as mines get older and the smaller explorers and developers get squeezed.
The situation is poised to change, with gold futures up 25 percent this year and the potential for the rally to continue given economic uncertainties such as the U.K.’s decision to exit the European Union, according to Josh Wolfson, a Toronto-based mining analyst at Dundee Capital Markets.
“Historically there’s been a very high correlation — almost a one-to-one correlation — between costs and the gold price, implying that with higher gold prices you will likely see costs rise at the same time,” Wolfson said in a phone interview last week.
Most miners have structured their spending based on the assumption gold will trade in a range of $1,100 to $1,150 an ounce, Wolfson said. Some companies such as Barrick Gold Corp. have been even more conservative, assuming $1,000 gold when mapping out their annual budget and $1,200 for significant longer-term capital investments. Futures rose 0.1 percent to $1,329.90 at 8:54 a.m. on the Comex in New York.
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