Toronto — Despite current market conditions and commodity prices, 2008 was a strong year for gold. According to the annual PricewaterhouseCoopers (PwC) Global Gold Price Survey released today, the price started at US$846 on January 2 and averaged over US$800 for the year.
“While other commodities and the economy have trended down, gold has held its value,” says Paul Murphy, leader of the Canadian mining practice at PwC. “Gold is serving its purpose as a hedge of wealth in uncertain times.”
There was significant intra-period volatility in the gold price over the year ranging between US$712 and peaking at US$905 in September. In early December, when the survey was conducted, prices retreated somewhat to US$764. Of the companies surveyed, 62% have determined the gold price assumptions that will be applied to ongoing reserve determinations and carrying values at December 31, 2008. The average price indicated by respondents is US$734 for reserves and US$751 for carrying values (2007: US$575 for reserves and US$640 for carrying values).
According to the survey most companies (69%) plan to use the same prices over time. Of those planning to use variable prices over time (20%), the average prices reported are trending downwards in the long term— US$787 in 2010 and US$732 in the long term.
A smaller percentage of this year’s respondents are disclosing price assumptions in determining reserves and carrying values this year (reserves – 62% in 2008 compared to 79% in 2007; carrying values – 31% in 2008 compared to 50% in 2007).
“Additional disclosures in this area will add transparency to the reporting of prices used in assessing reserves and carrying values,” notes Murphy. “In testing the appropriateness of carrying values, companies are permitted to include resources beyond proven and probable. However, many companies have not taken this approach as the proven and probable reserves have been sufficient to support the assertion that carrying values are recoverable.”
Despite the market and commodity price volatility during the past year, most companies reported no expected changes to their long term production levels; one third of those surveyed indicated that their production levels would increase in 2008 to 33.34 million oz. versus 2007 production of 34.63 million oz.
Of the companies surveyed, 64% have updated their mine plans significantly to reflect escalating input costs. Due to the credit crunch, companies report that raising capital has become increasingly challenging in 2008. A full 60% commented that it will be more difficult to secure financing and 28% expecting they may not be able to obtain financing at all in the near term.
According to the survey the use of gold sales derivatives has not changed significantly; however, some companies are starting to use hedging instruments to control the costs of key production inputs. Of our respondents approximately 20% hedge gold sales and nearly all follow “normal sales” accounting. An increasing number of respondents are hedging production costs. Of our respondents only 5 applied hedge accounting to gold sales or production cost hedges.
More companies are choosing not to disclose the sensitivity of reserves to price assumptions this year. Of those surveyed more than half (60%) indicated they have not made this disclosure in prior years and more than two-thirds (69%) would not do so this year. Murphy notes, “In order to increase the transparency and relevance of their reporting, this is an important area of focus.”
Also, very few companies disclose the sensitivity of their reserves to exchange rate changes and remained fairly constant this year (80% reporting they would not include these disclosures this year versus 82% reporting they have not in previous years).
A slight increase in the number of companies indicated that they will disclose exchange rates this year—42% indicated they would do so this year while 40% indicated they have in previous years. While the current exchange rate remained the leading factor considered when determining exchange rates used, analysts’ predictions and historical trends were also important considerations.
The survey polled 45 of the leading gold mining companies from North America, Australia and South Africa. The annual survey examines what gold price gold mining companies have used to assess carrying values, the issues that have influenced their determination and disclosure that is planned for their 2008 annual reports.
