Mines Tighten Belts as Gold Boom Ends

Mines Tighten Belts as Gold Boom Ends

BYLINE: Eddie van der Walt London

THE BIGGEST gold bust in three decades is about to end a six-year expansion in mine output.

From Russia to South Africa to North America, the biggest producers saw profits turn to losses as prices plunged, forcing them to cut spending on mines in half over three years. While bullion output would probably reach a record this year, the increase would be the smallest in at least six years, before production dropped 1 percent in 2016, according to Barclays.

Mines supplied 3 114 tons last year, a record high valued at about $127 billion (R1.5 trillion), after companies stepped up investment to capitalise on prices that surged more than fivefold in the decade through 2011. While the appeal of gold as a financial asset means that supply does not usually influence the precious metal's value as much as economic or monetary policies - partly because every ounce ever mined still exists - demand is growing in China and India, the largest buyers.

"Any contraction in mine supply will tend to tighten the physical market, which feeds through to price," John Meyer, an analyst at London-based brokerage SP Angel Corporate Finance, said last week.

"It is also a positive influence in a larger dynamic that influences investor sentiment towards gold."

With prices so low, about 10 percent of global production is not profitable, based on data from Metals Focus, a London- based industry consultant. The estimate includes the expense of mining and replacing reserves through exploration, as well as other costs. The firm, along with Morgan Stanley and Natixis, predict global gold output will decline.

"The big question is how fast supply will start falling," Nic Brown, an analyst at Natixis, said in an interview from London last week. "We don't think we are going to see sharp declines until at least 2017."

Barrick Gold, the biggest producer,