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Gold miners insist they are not in ‘dire straits’

Joe Klamar | AFP | Getty Images

The recent crash in gold prices has triggered widespread concerns over the future of the bullion market, but mining executives in Australia insist that the industry is not in "dire straits."

According to Gavin Thomas, CEO of Kingsgate Consolidated, which operates gold mines in Thailand, Australia and South America, even though gold prices are down sharply, they are back at levels seen in 2010, when the company was "very profitable."

"The Australian gold industry isn't as well off as it used to be, but it's not in dire straits," Thomas told CNBC at the sidelines of the annual Diggers and Dealers conference in Australia.

(Read More: No 'Armageddon' for miners: Western Australia Premier)

Executives argue that a weak Australia dollar has helped to offset the falling gold prices, which are sold in dollars. Gold is currently trading at $1302 an ounce, down from $1600 a year ago. When repatriated in Australian dollar terms, an ounce will sell for 1,461 Aussie dollars.

"We see a different perspective on the Australian gold industry because of the weaker currency," said Jake Klein, executive chairman at gold producer Evolution Mining, which is partly owned by Australia's biggest gold miner Newcrest.

Still, shares across the sector have been hit hard in tandem will the vicious selloff in bullion. Shares of Evolution have fallen 50 percent so far this year, while Kingsgate shares are down 64 percent year to date.

"Share prices (back in 2010) were 3 to 4 times higher. This has been an oversold market," Thomas said, maintaining that the miner remains in a comfortable financial position.

"With 1450-1475 (Australian dollars) gold price right now, it's not bad, but it's not great," he added.

(Read More: Gold Mining Stocks 'Too Cheap': Rule)

Klein of Evolution Mining said that at a budget of 1,400 Australian dollars per gold ounce, the company remains in a comfortable position to produce 400,000-450,000 ounces by the end of this year

"So with that (budget) we can pay a dividend, $20 million on exploration spend, and we've got a $200 million revolver [credit] facility of which we've only drawn down $130 million," he said.

Cost control and competitiveness

To mitigate the falling revenue on back of cheaper gold prices, miners are also resorting to cost cuts, including trimming salaries and jobs.

"The Australian mining industry lost control of its industry two years ago," Kingsgate's Thomas said, referring to the mining boom which triggered aggressive capital spending across the sector.

"You are seeing us taking control again in terms of costs. We certainly were not competitive for the last two years. (But) we are back to being competitive again," he added.

(Read More: Gartman on Gold: We've Never Ever Seen Anything Like It)

John Price, managing director of exploration firm Phoenix Gold, said the company is leveraging off lower drilling costs to ramp up exploration.

"We have seen the larger companies addressing their costs and that's left exploration in decline. We are fortunate enough to have funds in the bank, as exploration has dropped off, we're going in and doing a lot more exploration," he said.

"In December this year we'll be moving out of exploration and into development and production and we're looking at a production profile of 100,000 ounces a year," he added.

But Price warns of a coming consolidation in the industry as players struggle to gain access to capital in the equity markets. "I think you're going to see consolidation over next few years. We are going to see some casualties as well," he said.

—By CNBC's Ansuya Harjani; Follow her on Twitter @ Ansuya_H

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