(Article updated with gold prices information and additional commentary.)
HOLLYWOOD, Fla. (TheStreet ) -- Unrest in the Middle East and North Africa is hurting gold miners as oil prices pop.
On the one hand, recent violence in Libya has helped gold reclaim its identity as a safe-haven asset, pushing the metal up to a record close of $1,431.20 an ounce Tuesday. High gold prices can keep miners rolling in dough as low cash costs mean high profit margins.
But the biggest roadblock gold companies are confronting now is higher oil prices, which can eat into these profits. Oil topped $100 a barrel Tuesday and was trading above that level today, while Brent crude touched $116 on Tuesday.Gold mining CEOs attending the BMO Capital Markets Global Metals & Mining conference here Monday and Tuesday were unanimous in putting oil at the top of their risk lists.
Jeff Pontius, CEO of International Tower Hill (THM), a Canadian miner with a 10 million ounce gold deposit in Alaska, says "we do see inflation in a number of places, fuel, of course, is always a big deal." International Tower Hill will start producing in 2016. The company will complete its pre-feasibility study in 2011. To try to combat skyrocketing oil, International Tower Hill is buying its own fuel and then supplying it to the drillers to make sure they aren't overpaying. "Typically if [drillers are] buying the fuel they're going to try and put into their bid additional money." Pontius is gearing up for the volatility, financially prepared for oil prices between $80 and $100 a barrel. Helping the company is the strength of the Canadian dollar against the U.S. dollar, a trend that's increased International Tower Hill's purchasing power. The company is also leaning on Alaska to provide it with alternative energy options. "There's a number of initiatives in Alaska to bring natural gas down to Fairbanks, which potentially would provide us with on-site gas," Pontius said. Alaska is also looking into a hydro project, or water-based energy, to lessen its dependence on oil. Mark Bristow, CEO of Randgold Resources (GOLD), a West African gold miner, says "oil is the big inflator where we are." Randgold is expecting to produce 750,000 to 790,000 ounces of gold in 2011 at cash costs below $600.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV