The worst performing metal this year has been silver, says PwC’s new Gold,Silver and copper report, as prices plummeted 40% in 2013.
Despite silver’s poor performance, only 9% of silver miners expect the price of the precious metal to decline next year.
Meanwhile, although gold surpassed $1,900 per ounce in 2011, it fell to around $1,200 this summer. And fewer gold producers expect the gold price to increase in the next 12 months, says the report.
“Expectations for where the gold price is headed are conservative, with the exception of a few very bullish companies,” said PwC. Among the gold miners surveyed, 47% said they expect the price to increase in the next 12 months, which is down from 88% a year ago.
This year, 7% said they expect gold prices to further decline this year while 46% expect the price to remain the same.
When asked what gold prices companies are using to determine reserves, the average among respondents was $1,251 per ounce with a range of between $900 and $1,500. For resources, the average was $1,284, with a range of between $800 and $2,000.
“Today, most companies are focused on near-term pricing data to estimate their reserves,” said PwC. Reserve prices are based on internal estimates, historical average prices, forward curve, spot and consensus pricing as three-year trailing average price is becoming less relevant.
The PwC survey revealed 39% of gold producers believe their costs will be similar in the year ahead, while 28% expect them to fall. Only 12% anticipated costs to increase.
“With margins squeezed by the decline in commodity prices, investors and analysts increasingly want more transparent disclosure of total costs,” observed PwC. “’Improved reporting’ means increased transparency (more information), and consistency of definitions across the industry.”
A PwC survey of the top 40 global mining companies by market cap determined only seven companies provide an all-in cost figure. Only six companies—Barrick, Goldcorp, Gold Fields, Kinross, Newmont and Vale—disclose their definition of sustaining capital.
“Transparency on costs can help management make the case for difficult decisions, such as workforce reductions, care-and-maintenance announcement and divestitures,” said the report. “The prospect of continuing tight margins for the foreseeable future suggests that analysts and shareholders will keep up the pressure on miners for improved disclosure.”
SILVER
“Silver has had a terrible year: It started at around $32 per ounce, but then fell to around $18 by mid-year: That’s a reversal from 2012, when silver was the best-performing metal, ranging in price between about $26 and $37,” said the report.
“Oversupply is partially to blame for the drop in silver prices in 2013,” said PwC. “Its correlation with gold as a store of value for some investors also contributed to its price depreciation in recent months.”
Among survey respondents, 53% said they expect the price of silver to increase in the next 12 months while 38% expect it will remain at current levels. Only 9% predict a further decline in price.
The average price to determine silver reserves was $22 per ounce, ranging from a low of $17 to a high of $28. For resources, the average price was $22, with a range of between $19 and $28, said the report.
About two third of silver miners expect their cash costs to remain the same in 2014 while 21% are preparing for higher costs and 18% for lower costs.
COPPER
“Among the three key metals discussed here, copper clearly outperformed in 2013,” said PwC. “Still, the drop in price—from about $3.70 per pound at the start of the year to just above $3 as we finish the year—has weighed on margins for copper companies.”
“Much of the price drop seen in 2013 is said to be the result of a demand and supply imbalance, which is expected to continue into 2014,” the report advised.
“Many copper producers are anticipating another challenging year as copper inventories remain high and the global economy struggles to gain traction,” said PwC.
Copper companies are using an average price of $2.77 per pound, with a range of between $1.87 and $3.26 to determine copper reserves. For resources, the average was $2.87 per pound, ranging from $2 to $3.50, according to the report.
When it comes to cash costs, 47% of the copper miners expect theirs to remain at similar levels in the next 12 months, while 20% expect costs to increase moderately. Thirty percent of respondents expect their costs to decrease in 2014.
Source: Mineweb
