Gold Price Soars as Unrest IntensifiesBreaking News Alert February-24-11 4:31 PM
Gold price soars as unrest intensifies (RTGAM)
(RTGAM)
BRENDA BOUW
VANCOUVER — The price of gold is back near record highs, as spreading turmoil in Libya and the Middle East sends investors looking for safe havens.
But fallout from political strife also poses a risk for gold companies: Surging oil prices are eating into the bottom line.
Gold has risen by almost 10 per cent since late January, when protests began to build in Egypt against former president Hosni Mubarak. Political unrest in northern Africa then moved to Libya, Africa’s third-largest oil producer. where forces backing leader Moammar Gadhafi have launched a violent counterattack against opponents to his regime.
The growing political unrest helped send the spot price of gold to around $1,418 (U.S.) an ounce on Thursday, not far from a record of around $1,430 an ounce reached in December. Rising inflation in emerging markets is also underpinning gold’s rise.
Buoyed by strong prices, gold companies are reporting a steady stream of record quarterly and annual financial results. But the corporations are warning of higher costs in the months ahead as a result of surging oil prices and other expenditures, and there’s growing concern that those pressures will erode future profits.
Gold producers are sensitive to higher oil prices, said Deutsche Bank Securities Inc. analyst Jorge Beristain.
“Their number one input cost is energy,” he said. “We are seeing shades of 2008, when the inflation drum was beating globally.”
Rising costs have put pressure on mining stocks despite near-record gold prices. For instance, Newmont Mining Corp. shares fell more than 7 per cent on the New York Stock Exchange Thursday while Yamana Gold Inc.’s stock was down 2.5 per cent in Toronto, despite the strong results. Barrick Gold Corp. shares fell 3 per cent, while Kinross Gold Corp. shed more than 2 per cent.
In the latest round of earnings reports, gold companies have showed cost increases for operations and capital expenditures of up to 20 per cent as a result of inflationary pressure, not only from rising fuel costs but higher labour expenses.
When the recession hit in late 2008 and into 2009, costs dropped but gold prices continued to climb, which resulted in more profits for the producers. Costs remained stable for much of 2010, as gold prices further rose, setting the stage for the record profits and revenues that gold miners have been reporting over the past week or so.
But as costs continues to creep higher, “that honeymoon is coming to an end,” Mr. Beristain said.
“There is no doubt that we are into an inflationary time,” Yamana chief executive officer Peter Marrone said in an interview. “It will have an impact on everything, not just on the costs for mining companies.”
Goldcorp, the world’s second-largest gold miner by market capitalization, said Thursday fourth-quarter profit rose to $331.8-million or 44 cents a share from a year-earlier profit of $66.7-million or 9 cents. Quarterly revenue jumped 70 per cent to $1.32-billion. The company also raised its full-year dividend payout by 11 per cent to 40 cents a share and outlined plans to develop two major gold projects in Canada; the Éléonore project in Quebec and the Cochenour project in Ontario, both due to come online near 2014.
Denver-based Newmont, the world’s second-largest gold producer, reported fourth-quarter profit of $812-million or $1.61 a share, up from $558-million or $1.13 a year earlier. Quarterly sales rose to $2.55-billion from $2.52-billion.
Record gold prices in the fourth-quarter helped boost results for Toronto-based Yamana, which reported a profit of $160.4-million or 22 cents a share, compared with a year-ago profit of $36.2-million or 5 cents. Quarterly revenue rose more than 34 per cent to $535-million.
With files from Reuters
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