The manager of the US$10 billion World Mining Fund, Black Rock Inc's Evy Hambro had advised that some gold mining firms would be forced out of business after the price of gold slumped amidst increasing costs.
According to an interview with Francine Lacqua and Guy Johnson on "The Pulse" at Bloomberg Television, Hambro said, "We need to see these costs taken out of the industry, we need to see the companies stop producing the ounces that don't make money and focusing on the ones that do. For some it might be too late and bankruptcy might be around the corner."
As gold prices decline in a bear market, the Philadelphia Stock Exchange Gold and Silver Index has fallen by 49% this year. Not since August 2010 has gold fallen below US$1,200 and this can be attributed to the improvement of the US economy and its resulting cut backs by the Federal Reserve on its asset purchase program. The gold values hit its highest in September 2011 to a record price of US$1,921.
Hambro further said that he is expecting 'big writedowns' to be done soon, adding "I think it's going to lead to major writedowns within the sector this year because obviously the gold price assumptions that companies use to value their assets from a carrying point of view in their books are going to be far lower than in the past."
Join the Conversation