Barrick Says Gold Industry Needs $700 an Ounce to Break Even

(From www.bloomberg.com)

By Stewart Bailey

June 3 (Bloomberg) -- Barrick Gold Corp., the world's largest gold producer, said the industry needs bullion at a minimum of $700 an ounce to sustain itself amid rising costs.

The ``break-even'' price for the industry is $700 to $800 an ounce, an average level that will cover production costs, administrative and exploration expenses and capital expenditure to maintain existing mines and dig new ones, Barrick Chief Financial Officer Jamie Sokalsky said today. Inflation and rising prices for labor and fuel will drive the industry's required price higher, he said.

Rising costs are ``going to provide a strong floor for the gold price,'' Sokalsky said in a presentation to analysts and investors broadcast on the Internet. ``It's also going to make some new projects that the industry has difficult to bring in and that's going to be very bullish for the gold price.''

Gold has gained for seven straight years and reached a record $1,033.90 an ounce in March, fueled by declining output in some of the world's biggest producing nations and by investor demand for a hedge against inflation. While prices have gained, profits have been eroded by record fuel prices and surging costs for equipment and skilled labor, which in turn have made new mines more expensive to develop.

The current average cash cost for the world's gold industry is $450 to $500 an ounce, before an array of other expenses are taken into account, including depreciation and development of ore reserves, Sokalsky said. Barrick reported total cash costs of $393 an ounce in the first quarter.

Gold futures for August delivery fell $11.50, or 1.3 percent, to $885.50 an ounce today on the Comex division of the New York Mercantile Exchange. The price has jumped 31 percent in the past year.