What’s Going On With Gold Prices? Slipping Values Of The Fickle Precious Metal Was Talk Of The Mining Convention

The same question was repeated countless times last week in a dozen languages:

What is going on with the price of gold?

The sliding spot price of gold was top of mind all week for many of the 3,500 people from more than 25 countries attending last week’s Northwest Mining Association annual meeting.

“People are very worried about it,” said Earl Bennett, dean of the University of Idaho College of Mines and Earth Resources. “It’s like lemmings. Once that kind of thing starts, it’s real hard to stop it.”

Concerns mounted as the price of gold dropped lower each day. Early in the week, gold dipped under its 12-year low to close at $294. By midweek, it closed at $292.

On Thursday, the slide continued, with gold closing at $288. Friday’s close was $287.40.

“This is a calamitous decline with ominous implications,” said Leonard Melman, financial columnist for the International California Mining Journal.

“The price is only $3 away from the 1985 low of $285. If it goes through there, the next (milestone) low is $103, which we hit in 1976,” Melman said.

Low gold prices have mining companies preparing to hold off on major development projects.

Coeur d’Alene Mines is in the final permitting stages for its massive Kensington gold project in Alaska, with approval expected early next year. But if prices don’t rebound, startup for the large-scale gold mine may be stalled.

“With the metals prices where they are right now, that’s going to be a tough project to move forward with,” said Luke Russell, Coeur’s director of environmental and government affairs. “We expect to make a decision by the end of the first quarter.”

While some firms question whether to open gold mines, others have already decided to shut down operations because of the metal’s decline in value.

Pegasus Gold, which has its headquarters in Spokane, announced a $353 million write-down and closure of the Mt. Todd gold mine in Australia in its third-quarter earnings report. With production costs of $330 an ounce, the mine was unprofitable, said John Pearson, Pegasus vice president of investor and public relations.

Pearson spent last week joining virtually everyone at the mining convention in watching gold and keeping his fingers crossed.

“I don’t know when or if there is a bottom, or what will arrest the deteriorating price,” he said. Pegasus stock, which neared $6 a share earlier this fall, stayed under $1 a share much of last week.

The future of Pegasus Gold is in the hands of lenders who could decide to call for immediate payment of about $130 million outstanding on a line of revolving credit. If that happens, Pearson said, the company will file for Chapter 11 bankruptcy protection. Short-term gold prices will likely have a major impact on lenders’ decisions.

“That will play into it,” Pearson said. “Certainly, they’ll be looking at the gold price situation.”

The gold mining industry “is in new territory with lows we haven’t seen in a long time,” Pearson said, adding that the recent slide is “one of the biggest we’ve ever experienced.”

Should prices bounce back, Mt. Todd might once again make financial sense, Pearson said, and the analysts’ “sell” recommendations that accompanied the third-quarter report could change to “buy.”

“Their analysis is based on the current gold price,” he said. “If you change the gold price, it changes your asset evaluation.

“The whole backdrop is the deteriorating gold situation,” Pearson added. “If gold had stayed in the mid$300s, we wouldn’t even be having this conversation.”

Pegasus isn’t alone in the writedown arena. Both Echo Bay and Barrick Gold took losses in excess of $300 million during the third quarter.

Douglas Silver, president of Balfour Holdings, a Colorado-based consulting firm, expects “a flurry of mine closures” in the fourth quarter of 1997.

“This has probably been the most interesting year since gold hit $800 in 1980,” Silver said, adding that nearly 20 gold mines have closed in recent months with more on the way. “There are a lot of mines about to shut down that haven’t been disclosed yet.”

And that, Silver said, is precisely what will pull gold off the ropes.

With vast amounts of stored gold being sold by central banks around the world, those former warehouses of the precious metal have become competitors of the mining trade, he explained. Until the above-ground supply is absorbed, gold prices will keep sinking and underground production will remain unprofitable.

When current prices are compared with total production costs, 70 percent of the world’s gold mines are operating at a loss, Silver said.

“That hurts more than just the gold companies, because gold is such a significant byproduct in things like copper and silver production,” said Otto Schumacher, outgoing president of the Northwest Mining Association. “There’s a trickle-down effect that hurts mining all the way around.”

On the second day of the annual meeting, Northwest Mining Association Executive Director Laura Skaer told reporters:

“People are coming to this convention wondering, ‘Where are the opportunities?’

“They’re asking, ‘Are they (gold prices) going to come around, or is it time to become a shoe salesman?”’

, DataTimes