Gold fell to a four-year intraday low of $1,137.10 an ounce Wednesday, below production costs for seven of 19 mining companies tracked by Bloomberg Intelligence, including Harmony Gold Mining Co., South Africa’s third-largest producer, and Primero Mining Corp. Two more producers are within $50 of the figure.

“What’s developing is almost a two-tier type of market,” John Ing, chief executive officer at brokerage Maison Placements Canada Inc., said by phone. One tier has companies with good assets and lower costs, while the other comprises producers “who are saddled with high-cost operations” and stretched balance sheets.

“Investors are looking through the so-called carnage and are holding onto the top tier and are dumping the second tier,” he said.

The seeds of the industry’s predicament were sown during gold’s 12-year bull-run, when it rose to a record $1,923.70 an ounce in New York in 2011. Mining costs were allowed to spiral “out of control” and mines were built assuming high prices, said Mike Schroder at Old Mutual Investment Group in Cape Town.

Producers “were all looking for volume rather than value when the times were good,” said Schroder, who helps manage 574 billion rand ($52 billion) in assets. “Now they’re paying for that.”

Gold Index

As gold prices fell 4.7 percent last week, the Standard & Poor’s/TSX Global Gold Sector Index of 40 producers plunged 16 percent. About a third of worldwide output is probably cash-flow negative with gold at less than $1,250 an ounce, according to Joe Wickwire, who manages the Fidelity Select Gold Portfolio.

Gold futures fell 1.9 percent on Wednesday to settle at $1,145.70 an ounce. The S&P/TSX gold index declined 4.3 percent to the lowest since November 2001.

There are producers making money at current prices. In the third quarter, so-called all-in sustaining cash costs were $834 an ounce for Toronto-based Barrick and $711 for Englewood, Colorado-based Alacer Gold Corp. The measurement includes the expense of mining and replacing reserves through exploration, as well as other costs like corporate expenses. Not all mining companies calculate this figure the same way, and not all companies report it.

‘Resilient’ Producers

Goldcorp, Randgold Resources Ltd. and Eldorado Gold Corp. are among “resilient” producers with flexible business plans and strong balance sheets, according to Stephen D. Walker, an analyst at RBC Capital Markets in Toronto.

The reckoning began in 2012. Several CEOs, including those of Barrick and Kinross Gold Corp., were fired, and the industry took more than $26 billion of writedowns after prices declined in 2013.

Those efforts didn’t impress investors. The market value of the S&P/TSX index has slumped by about two-thirds in the past three years.

Investors flocked to gold-backed exchange-traded funds when prices were rising, which allow them to capture gains in the price of the commodity without the added complication of storing physical metal.

While gold miners might have been optimistic that higher prices would finally lift earnings, the metal has fallen again. It’s about 40 percent lower its peak three years ago. It fell last week by the most since September 2013 as the U.S. dollar strengthened, after the Bank of Japan unexpectedly boosted stimulus and the Federal Reserve ended asset purchases.

‘Currency of Fear’

“The gold price for us is the currency of fear, and fear in the market seems to be abating, rightfully or wrongfully,” said Guido Barthels, chief investment officer at Ethenea Independent Investors SA in Luxembourg.

While producers seek to reduce costs, the fate of the gold market is largely out of their hands. Garrett Nelson, an analyst at BB&T Capital Markets, lowered his rating on Newmont Mining Corp. to hold from buy, even though he said the U.S. company had made good progress cutting expenses, selling assets and “controlling what it can control.”

“It’s been one headwind after another for gold, and we are opting to move to the sidelines instead of continuing to fight the tape,” Nelson said in a Nov. 3 note.

Harmony Gold’s all-in sustaining cost was $1,245 an ounce in the quarter ended Sept. 30, the company said today as it swung to a loss before one-time items of 266 million rand.

Cutting Costs

“We can’t react week to week on the gold price,” CEO Graham Briggs said on a call with reporters. If gold remains at current levels, “we’ll have to do a few more trims and cuts.”

Primero reported second-quarter all-in sustaining costs of $1,228. The Vancouver-based company is “confident” it can reduce production costs next year, Tamara Brown, a spokeswoman, said in an e-mail yesterday. Its main asset had costs of $626 an ounce in the second quarter.

The most recent data from DRDGold Ltd., a South African miner, and Canada’s AuRico Gold Inc., Golden Star Resources Ltd. and Alamos Gold Inc. also show costs higher than current prices.

DRDGold is making progress on improving gold recovery levels, “supporting the bottom line and helping in maintaining daylight between the revenue line and the cost line,” CEO Niel Pretorius said in an e-mail.

‘Cash Flow Dynamics’

The all-in sustaining measure also includes non-cash items, “which don’t always provide such clear insight on the cash flow dynamics of the business,” Pretorius said.

Golden Star spokeswoman Angela Parr said the company’s management is focused on cutting costs and it plans to reduce them “dramatically” over the long term. Alamos said in its third-quarter earnings statement that costs were higher than expected because of a severe rainy season that resulted in some production being deferred to the fourth quarter.

Gold falling to $1,100 would mean some companies may have lines of credit withdrawn, may suspend high-cost mines, or they may have to hedge output, according to RBC’s Walker.

“New development projects will likely not get board approval,” Walker said yesterday in a note.

Anne Day, an AuRico spokeswoman, said the stronger U.S. dollar will benefit companies that operate outside the U.S., including the Toronto-based producer that has operations in Canada and Mexico.

It’s a mistake to lump all the producers together, according to Fidelity’s Wickwire. While the market continues to be very skeptical about the industry, the pessimism is overdone for some of the better-positioned companies, he said.

“If you’re going to own a gold mine, you want to make sure you’re there with very good operators,” said Don Reed, a Toronto-based fund manager at Templeton Global Equity Group.