We're kidding ourselves: Holland

A FRUSTRATED Gold Fields boss Nick Holland told the Denver Gold Forum last week that the real reason equities had languished against the gold price was that producers were shooting themselves in the foot by telling only half the story.
We're kidding ourselves: Holland We're kidding ourselves: Holland We're kidding ourselves: Holland We're kidding ourselves: Holland We're kidding ourselves: Holland

Holland said that part of the problem was that the industry had not grown.

"The top eight gold companies, which make up about 40% of the industry, have really not grown over the last five or six years. In fact, they've declined," he said.

"I've been coming to these conferences for 15 years and us, like everybody else, have been talking about growing production but, in fact, our production has declined by around 2% per annum over the last six years.

"In fact, we're saying again as an industry that we're going to grow by 6% going forward, and I guess the question is, is it growth just for growth sake? That's part of the problem that we have."

Holland said the other problem was that operating costs had risen by 12% per annum on a cost per tonne basis and grade had declined by 5% per annum over the same period.

"On a total cost basis, that shows that our costs are going to be increasing significantly," he said.

"So what's happened? The gold price has gone up 21% over the past five years, but our total all-in costs have gone up 21% over the same period.

"Again, we sit here and talk about how wonderful our cash costs and at the end of the day that's only half the equation."

Holland said to get the real picture, producers had to be looking at total costs.

"And the real picture is that we don't really make much money," he said.

He added that the industry wasn't kidding investors.

"The investors understand all this stuff. We don't kid the sell-side, the street - they also understand this stuff," Holland said.

"The people we're really kidding are the governments around the world, who think they can tax us a lot more, and communities, who think that we should be paying a lot more than we are.

"We need to re-evaulate the way this industry looks at itself and how this industry reports its actual performance."

Like the forum's keynote speaker, Pierre Lassonde, on Monday, Holland hit out at analysts for talking the gold price down.

"If you look at what has happened over the last six years, what I can tell you is, if you take the consensus gold price forecast, then in six years out of six, the street has got it horribly wrong, and if you look forward, what are they saying?

"They're saying, ‘well the gold price is going to go up a little bit, but then it's going to decline again', and they're now saying that the long-term gold price is going to be around $US1300 in nominal terms - not real terms - against the backdrop of an industry that has an all-in cost already well over $1300 in today's money, which tells us that if the analysts forecast are correct, we don't have an industry."

Holland said that notion was frightening investors away.

"I think we have to believe in the gold price - the gold price has done well and it continues to do well, and certainly if you're going to be in this business, if you're going to be investing in gold companies, then believe in the gold price," he said.

"What we've got to do as executives is give you the returns we should have given you over the past 10 years."

He said that realisation had been evident in other presentations from larger miners such as Barrick and Newmont and there would be a much more sobering view of what future production would be and producers had to stop chasing growth for growth's sake and focus on margins.

"That might be a better outcome for the industry," Holland said.

"Let's stop kidding ourselves by standing up here and talking about low cash costs - that is not the reality in this industry."

Holland called for miners to report total cash costs.

"We can all get a reality check of where we are and what we can achieve and, in the long term, I think it could well be positive for the fundamentals in the industry - and not negative as some people claim."

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