Fear and panic are settling in once again for Canadian gold and silver miners.

Thursday’s plunge in precious metals prices brings them down to dangerous levels for mining companies. Many miners are already working on razor-thin margins, and if prices do not recover soon, they will be forced to make very difficult decisions about their businesses. Those include massive production cuts, layoffs and outright mine closures.

Many gold miners have slashed capital spending, but they have avoided dramatic overhauls of their businesses so far. However, that is already starting to change.

Announcements on Wednesday from well-known junior miners Orezone Gold Corp. and Victoria Gold Corp. provide a small sample of the kind of moves miners could be forced to make. Orezone tossed out its development plans and started over, while Victoria announced enormous cost reductions and said goodbye to two senior executives. There will be many more moves like these if the bear market continues.

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The spot gold price dropped to as low as US$1,285 an ounce on Thursday after Federal Reserve chairman Ben Bernanke suggested the central bank could pull back on its stimulus program later this year. The S&P/TSX Global Gold Index fell 5% alongside it as investors assessed the damage on gold miners.

While US$1,285 is a very strong price by any historical measure, it does not provide much breathing room anymore for gold miners, which are facing enormous cost pressures. “All-in” costs in the gold industry range between US$900 and US$1,300 an ounce, according to various estimates, and they are even higher once taxes are included.

There are signs that costs could start to move downward, as mining activity has slowed around the world and companies have reported an easier time securing labour and equipment. But costs are not easing fast enough to make a difference right now as prices plummet.

Virtually every mining company has a contingency plan in place should they end up in an extended period of weak prices. They will be studying those plans very carefully over the next few days.

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