HAI: Moving over to mining, what’s the current thinking about the gold price that is needed to keep gold mining profitable? Is it still around $1,000 an ounce, or has that moved?

Foster: If the price got down to around $1,300 an ounce, we would start to see some of the marginal mines really struggle to stay open.

HAI: Do oil prices have a large influence on that? When oil prices are going up, does that push that minimum gold price needed for profitability?

Foster: The biggest driver of the rising costs is labor. There’s a labor shortage in the mining industry, and so we’re seeing labor costs go up substantially. Energy is probably No. 2. Those would be the big ones. Mining companies are getting hit on all fronts on the cost side.

HAI: Do mining companies typically hedge against oil prices?

Foster: Some of the majors do, but not in a big way. They might hedge 10-20 percent of their oil or fuel needs.

HAI: How would you characterize merger-and-acquisition activity among gold producers within the last year or two? With peak gold prices, would you have expected more activity?

Foster: In 2010, we had probably a record year for M&A activity, but it’s fallen off significantly in 2011 and this year. That’s mainly due to valuations. Gold stocks have underperformed. Gold valuations are at very low levels right now. And when valuations are low, you don’t get a lot of M&A activity, regardless of what’s going on with the gold price.

HAI: Do you feel the level of dividends is high enough to continue to attract investors?

Foster: Companies need to do more. In fact, the market is telling them they need to do more. They’ve implemented aggressive dividend policies and the yield on these stocks has trended toward 2 percent. But to stand out as a dividend-paying stock, you need to be up higher than that. And even though they’ve implemented these policies, it’s not reflected in their share prices. It hasn’t moved their share prices. I think that’s the market saying, “No, we’d like to see more.”

HAI: What do you make of some of the higher-level executive changes at gold companies?

Foster: It’s a sign that companies recognize they need to change the way they manage their business. Boards have gotten the message from the market that these stocks have underperformed because the market sees the managements as inept.

But part of that perception isn’t the fault of management. All of it revolves around escalating costs, and a lot of drivers are beyond their control. But what the managements have failed to do is forecast properly and guide expectations. Even though their costs are rising, they need to be in front of that. They need to tell investors and let the markets know what to expect. They haven’t done a very good job of that. As a result, every quarter the market gets surprised by costs or operating issues or something that’s not going right within a company. Then they miss expectations, and markets just hate that.

We’ll see a new emphasis on setting and meeting guidance. We’re seeing companies review projects and we’ll see projects delayed or shelved in the industry going forward.

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