Silver lining The past couple trading days have been tough for NGD longs, however when the gold dust eventually settles New Gold will be in excellent shape. Beyond attributes such as organic growth soon to come online, a great balance sheet, and operations in politically safe juristrictions, NGD is also the lowest cost producer in the the industry(as per CEO Randall recently). If the POG falls much further other producers will mothball mines that are not profitable which will drive prices higher - a few short reads on this:
Globe and Mail:https://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/falling-gold-price-squeezes-embattled-producers/article11228030/
"Goldcorp Inc., New Gold Inc., Yamana Gold Inc. and Agnico-Eagle are among the miners best able to withstand lower prices because they have lower costs, lower levels of debt and have recently completed new mine development. Miners with a higher proportion of gold production from underground mines are also in better shape because they can change plans to access higher-grade, lower-cost ore, the bank report said."
Market Nuggets: Barclays: Production Costs Would Offer Support For Gold Around $1,300/Oz
Tuesday April 16, 2013 8:01 AM
Support for gold can be expected around $1,300 an ounce, as a substantial amount of mine production may be at risk below this, says Barclays Capital. Last year, the average cost of production was $673 and the marginal cost (90th percentile) was $1,104. "Assuming sustaining capex at around $200/oz, this indicates cost support at around $1300/oz, based on last year's data; our global database encompasses 35% of global production," Barclays says. "Should prices dip below marginal cost, around 10% of production under our cost curve becomes cash-negative, representing an estimated 262 (metric) tons of cash-negative gold production globally."
Market Nuggets: TDS: 15% Of Gold Producers Underwater On All-In Cost Basis
Tuesday April 16, 2013 8:00 AM
The huge two-day drop in gold prices the last couple of days could crimp supply if some output is now unprofitable, says TD Securities. "The fact that some 15% of gold producers would now be underwater on an all-in cost basis suggests that near-term and long-term supplies will wane, serving as support for long-term gold prices," TDS says. "Unlike in previous cycles, any possible producer hedging is unlikely to serve as damper on gold, as it will be very difficult to use traditional forward sales hedging given the credit environment in the commercial banking sector."