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Melbourne - Gold mining companies should learn about cost cutting from iron ore producers to avoid relying on high prices and better prepare for any downturn, according to Resolute Mining.
The five-largest iron ore exporters have cut the price they need to break even by half since 2013, according to Citigroup. Fortescue Metals Group said last week fourth-quarter cash costs fell 35% and the producer is targeting further reductions.
"The iron ore industry, and particularly Fortescue, is showing what’s possible," Resolute chief executive officer John Welborn said on Tuesday in an interview in Kalgoorlie, Western Australia. "At Resolute, we need to copy that application, urgency and vigour in bringing our costs down."
Resolute cut its all-in sustaining costs to $874 an ounce in the year to June 30, from $915 an ounce in the previous 12 months, the company said on Tuesday in a statement.
All-in costs among an index of 14 large gold producers fell to $893 an ounce in 2015, from $954 an ounce in the previous year, according to Bloomberg Intelligence.
The iron ore sector’s scramble to cut costs comes after prices slumped from a 2011 peak, and gold producers should remember that the precious metal traded at a six-year low in December, said Resolute’s Welborn, who previously was CEO of Equatorial Resources, a developer of iron ore projects in Africa.
The collapse in iron ore prices "teaches you to not rely on high prices," Welborn said.
"The fundamental underlying profitability of a business is reliant on what you can control, which is your costs of production."
Perth-based Resolute, with mines in Mali and Australia, has advanced more than seven-fold this year and is the best performer among an index of about 300 companies listed in Australia.
Lapse risk
Iron ore producers in Australia have won savings from a weaker local currency, cheaper fuel costs and have also been able to lower charges from contractors or logistics providers and cut machinery hire charges, Citigroup analysts including Ed Morse said in a report last month.
High gold prices mean for the bullion sector "there is a risk that we lapse back into being a little less rigorous on our costs," Jake Klein, executive chairperson of Evolution Mining, Australia’s second-largest producer, told reporters Tuesday in Kalgoorlie.
"We have done the easy things on reducing costs, now it’s going to have to be the more innovative parts, and there’s still a lot to be done."
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