aud felt below $1, page-2

published today in the australian

ANOTHER drop in the gold price -- and another gold sector casualty. On Friday, after the market closed, Saracen Mineral Holdings (SAR) dropped a bombshell.

It was indefinitely suspending its expansion at the Carosue Dam goldmine in Western Australia, slashing exploration and development, halving the mining fleet and slicing 20 per cent off the fees being paid to non-executive directors, who will now have to get by on $80,000 a year.

The new MD, Raleigh Finlayson, may also have to take home less money than expected.

The decisions were made after what the company called a strategic review caused by the volatility of the gold price.

Yet, less than a month ago there seemed to be few alarm bells ringing. The quarterly report came out on April 17, with the gold market having closed overnight at $US1378.90 an ounce, much lower than it is now (even after Friday's $US10.05 fall, the yellow one is holding at $US1448.20/oz).


But that quarterly was really upbeat, noting record gold production, the company being on track for record annual gold production of at least 125,000oz, and a mark to market hedge worth $56 million assuming a gold price of $US1300/oz. The next day, the company delivered a similarly upbeat picture at a gold conference in Zurich.

Indeed, SAR's shares did very well over the past week, moving from a Monday open of 15c to a Friday close at 18c.

But there was a clue in the March quarterly: cash costs for the year would be between $975/oz and $1075/oz.

Yes, but once you add other costs -- royalties, capital works, mine development, exploration and corporate expenses, SAR is looking at an "all-in" cost of $1600/oz. The changes announced on Friday will bring that all-in cost down to $975/oz.

We shall await with interest to see what the market makes of SAR when trading opens this morning.

There was collateral damage, too: contractor GE Engineering Services (GNG) says the suspension of the $16m crushing project at Carosue Dam will put a $4m hole in its second-half revenue.