The wave of rationalisation that is starting to emerge among the major diversified miners will soon spread to the gold sector, as soaring costs and labour shortages begin to squeeze margins.
That warning from Nick Holland, the head of South African miner Gold Fields Limited, came this afternoon as the world's fourth biggest gold company addressed the Melbourne Mining Club.
Mr Holland criticised fellow gold producers for failing to include corporate and capital costs when publicising their profit margins, saying they were only fooling themselves and governments, who would duly seek to tap the industry for more taxes.
Mr Holland said rising energy, labour and production costs would virtually double costs in the next five years, and a gold price of close to $US2000 per ounce would be needed to keep pace.
If costs remain close to $US1600 where they have been in recent weeks, much of the industry would be "killed", he said, and many companies would have to pull back on projects.
"It may be that we have are going to have to see the sector rationalise before people believe us," he said.
Mr Holland said gold companies would have to start favouring dividends and returns to shareholders over marginal production if it is to win back investors, who have fled to gold-focused exchange traded funds in recent years.
Gold Fields is based in Johannesburg but operates the St Ives mine in Western Australia, and Mr Holland said he was looking for another mine in Australia.
Mr Holland said margins at St Ives were "tight" and the company would have to work hard to sustain that mine.
