Precious Metals Forum

Go Back   Precious Metals Forum > Precious Metals and Economic News > PM Bug

Like Tree99Likes

Reply
 
LinkBack Thread Tools
Old 11-24-2013, 06:45 PM   #121
Big-eyed bug
 
Unobtanium's Avatar
 
Join Date: Nov 2011
Posts: 451
Liked: 344 times
Originally Posted by rblong2us View Post:
Renewables, LNG, shale gas and coal are all being developed to cover the reality of peak oil. Yes we did hit peak oil and yes technology did ride to the rescue.

We are currently using more energy than we did prior to the 08 collapse in world trade and this is being interpereted as a worldwide recovery.

( sorry I cant find the article where i read all this but i think it was from one of the old Oil Drum crew ...)

The price of oil is effected by the availability of these alternative sources and I reckon we can realistically expect energy costs to remain fairly stable in the near term.

So if the POG is to go up, something else has to be the driver )-:
I should have probably re-read and posted more of the original post:

Quote :
Miners currently needed a gold price of $1,300 to survive, Shishmanian said, but faced steep rises in mining costs, along with the cost of dividends and host nation taxes.

"If this continues for the next five years the gold price needs to be at least $3,000 just to stay in the business," he said. However, he was optimistic sustained demand would drive prices higher over the long term.
This is interesting, because demand has not really been a driver in the POG over the past decade or more because supply has approximately kept up with demand.

So either an unusual increase in demand, or steep increases in mining costs, would be the upcoming POG drivers.
Unobtanium is offline   Reply With Quote
Old 11-24-2013, 06:58 PM   #122
Big-eyed bug
 
Unobtanium's Avatar
 
Join Date: Nov 2011
Posts: 451
Liked: 344 times
Originally Posted by rblong2us View Post:
To sell now and take the loss makes logical sense but then thats what the shakeouts are supposed achieve.
Confucius say, "Never buy PM high and sell low".

Originally Posted by rblong2us View Post:
But to simply ignore this logic and say 'fook em one day my stash will buy my dream' is where a lot of us sit.
Fook the banksters.

Originally Posted by rblong2us View Post:
Perhaps we need to start reassuring each other that we really should hold on.
If we were all honest, most of us have had those times, like during this period, where we say to ourselves, "Do I really know what the hell I am doing?".

Originally Posted by rblong2us View Post:
Possibly one of the more important functions of this site ?
Here, here!
rblong2us likes this.
Unobtanium is offline   Reply With Quote
Old 11-24-2013, 07:21 PM   #123
Big-eyed bug
 
Unobtanium's Avatar
 
Join Date: Nov 2011
Posts: 451
Liked: 344 times
Originally Posted by ancona View Post:
It's interesting to see the relationship over time like that. I wonder how the price of silver and gold compare to food on the same timeline?
Here you go, my friend. A graph of the price of white bread as compared to the price of gold. In general, they both rise, but not with the same shape vs time. Bread data is from the US U.S. Bureau of Labor Statistics, for what it's worth.

Maybe I will post a few other consumer commodities vs gold a little later.

Unobtanium is offline   Reply With Quote
Old 11-25-2013, 03:05 AM   #124
Yellow Jacket
 
rblong2us's Avatar
 
Join Date: Nov 2011
Location: off world
Posts: 1,971
Liked: 872 times
The cost of making bread has fallen due to innovations over the timescale of the graph and because the price of wheat is artificially suppressed by subsidys given to farmers.

So as a % of avg earnings, bread is at a low.

These graphs need to be used carefully.
__________________
if it cant be done with a digger .... it cant be done
rblong2us is offline   Reply With Quote
Old 11-25-2013, 06:35 AM   #125
Super Moderator
 
benjamen's Avatar
 
Join Date: Mar 2012
Location: Migratory
Posts: 1,620
Liked: 685 times
Advances in technology is actually pushing the cost of food down.

http://pricedingold.com/food/

"The UN Food and Agriculture Office tracks prices of food around the world, converts local prices to US Dollars, and calculates an index with 100 being the average for 2002-2004. Prices for meats, cereals, oils/fats, dairy and sugar make up the components of the index, which is updated monthly."

rblong2us likes this.
__________________
I drive men mad
For love of me,
Easily beaten,
Never free.

PMBug 101 *** Forum Rules
benjamen is offline   Reply With Quote
Old 11-25-2013, 03:33 PM   #126
Predaceous stink bug
 
Potemkin's Avatar
 
Join Date: Jul 2013
Posts: 220
Liked: 31 times
Someone will have to pump up gold's price heavily in order to make it profitable.
Maybe Rickards is right about 3,500 $ gold.

But Bitcoin still brings more profits!
Potemkin is offline   Reply With Quote
Old 12-06-2013, 05:29 AM   #127
Big-eyed bug
 
Unobtanium's Avatar
 
Join Date: Nov 2011
Posts: 451
Liked: 344 times
The following article states that China is mining some of their gold at a cost of $2500/oz. I am posting this article because it perked my interest, but I post it with some reservation because I don't particularly care when words like "stunned", "stunning", "staggering", etc are used in the article. But this is typical of KWN articles. Secondly, there are no references given for the 2500/oz claim other than "incredibly well-informed from his sources inside China".

Nonetheless, it does make for an interesting read and an interesting data point.

http://kingworldnews.com/kingworldne..._An_Ounce.html

Quote :
China Mining Some Gold For A Staggering $2,500 An Ounce


Today a man who has proven to be incredibly well-informed from his sources inside China about what is happening in that country stunned King World News when he said that China is actually mining some of its gold at projects inside of China at staggering “all-in cash costs in the $2,000 to $2,500 range.” Acclaimed money manager Stephen Leeb believes this has incredibly important implications for what the Chinese believe the price of gold will be trading at in the future. Below is what Leeb had to say in his remarkable interview.

Leeb: “I thought that gold would go down and test its lows at $1,180, and maybe even break that level just a little bit as part of a bottoming process, but gold is acting better than I expected. Look, as you know, Eric, long-term I expect gold to be a $10,000 metal. That hasn’t changed at all....

“So what we are seeing right now in terms of the gold price is just a short-term phenomena.

China is the world’s largest producer of gold, and they keep all of that gold production. So not only are the Chinese vacuuming up all of the gold from the West, but they are also keeping the world’s largest volume of production for themselves as well. This is why the West is losing control and the people in the West are going to be the bag holders.

But the only way the Chinese can be doing all of this mining is if they believe gold is going to be selling for at least $2,000 to $2,500. The Chinese are not looking at the price of gold today. Instead they are planning for the future. This is what they are doing when they decide whether or not to go ahead with a particular project.

They don’t front-weight things. In other words, if they put up an infrastructure project and that infrastructure project doesn’t earn anything for 3 or 4 years, they will live with it if they believe that 5 or 10 years out they are going to be able to use it in the future to dominate things.

And that’s exactly what you are seeing with their gold production. There is no way, given China’s reserve base, that they could afford to mine as much gold as they are mining today unless they are assuming gold will trade between $2,000 and $2,500. This is because some of their reserves are being mined at a significant loss in terms of today’s gold price.

So here you have a country that is buying gold hand-over-fist, and they are mining gold as if they know it’s going to be priced at a minimum of $2,000 to $2,500. As an investor, I’m not going to fight them. It’s one thing to say, ‘They are buying gold.’ Well, they are buying gold at around $1,200, but it’s another thing to see them mining gold at all-in cash costs in the $2,000 to $2,500 range on some of these projects in China.

In other words, the Chinese are betting on significantly higher gold prices over time, otherwise they wouldn’t be mining at those high cost projects in China. But they are spending that kind of money right now at some of these projects in order to cultivate gold. So either you believe the Chinese are idiots, or you believe they are correct in their belief that gold is going to surge well over $2,000 an ounce. I’m betting the Chinese are right and gold is going a hell of a lot higher from here over time.”
rblong2us likes this.
Unobtanium is offline   Reply With Quote
Old 12-06-2013, 06:44 AM   #128
Golden Cockroach
 
PMBug's Avatar
 
Join Date: Oct 2011
Location: In Scrooge McDuck's vault
Posts: 7,028
Liked: 2449 times
Wouldn't that necessarily be the case for brand new mines? I don't know the economics of mining, but it seems to me that efficiencies wouldn't be realized until a certain maturity is reached in the operations. I also don't know how the accounting works for infrastructure (equipment, etc.) costs.
__________________
The journey of a thousand miles begins with a single step. - Lao Tzu

Important stuff: PMBug 101 * Forum Guidelines * Support PMBug
PMBug is offline   Reply With Quote
Old 12-06-2013, 07:31 AM   #129
Yellow Jacket
 
ancona's Avatar
 
Join Date: Nov 2011
Location: Waaay south
Posts: 3,370
Liked: 2046 times
PMBug,
If they treat equipment as we do for accounting purposes, then they write it off over it's lifetime. In general industry [construction/demolition] we depreciate at either three or five years, depending upon the durability of the equipment. Trucks, large powered equipment and so forth we cost out over five years, while smaller equipment and shop tools are three years. Uncle sugar has pretty hard and fast rules about loading on the front end.

I would think that a mine owner makes a conservative assessment of the ultimate resources in the rock and spreads the cost of a lot of the major infrastructure across a number of years, based upon anticipated recoveries and initial investments/pay-out assumptions.

We got a Cat 349E large excavator and will have to completely depreciate in five years, even though it will be digging and demolishing well past that time frame. That kind of sucks for us since Uncle Sam doesn't like to pay any more than fuel/oil/grease for owned equipment. In fact, the USACE has a pretty complex spread sheet we have to use to determine what we can charge, irrespective of actual cost.

Tax rules are a lot like "Chinese Arithmetic."
__________________
All things being equal, the simplest answer is quite often the correct answer - Occam
ancona is offline   Reply With Quote
Old 01-13-2014, 06:50 PM   #130
Big-eyed bug
 
Unobtanium's Avatar
 
Join Date: Nov 2011
Posts: 451
Liked: 344 times
Originally Posted by Unobtanium View Post:
Tinfoil hat = on.

We have seen charts that show the major banks recently positioning from net short to net long in gold.

Keeping this in mind, does anyone think that TPTB have not only driven the POG and POS down to cover their shorts, but also to drive it down so far that they might purposely drive some of the miners out of business?

Wouldn't this match with what they have been doing in the retail market for decades now: Drive away the smaller grocery stores, hardware stores, department stores, local banks,etc via extra-low mega-store prices, buyouts and mergers. What we are left with is a small selection of mega-retailers, owned by the cronies of TPTB. I am also seeing this happen for the past two decades with technology companies in my field.

Why wouldn't they want to continue this trend with mining companies? Drive the smaller ones out of business and/or buy them out when they are in dire straits, such that in the end, they own all the mines.

Thirdly, driving some of the miners out of business is a good catalyst for the POG and POS to slingshot upward now that they have gone net long.

Tinfoil hat = off.
Today a report came out where Goldcorp is acuiring Osisko Mining:

Quote :
Goldcorp offers C$2.6 billion to acquire Osisko Mining

http://www.reuters.com/article/2014/...A0C0PF20140113

By Euan Rocha and Allison Martell
TORONTO Mon Jan 13, 2014 1:07pm EST
Credit: Reuters/Rick Wilking

(Reuters) - Goldcorp Inc (G.TO) launched an unsolicited cash-and-stock bid to acquire smaller rival Osisko Mining Corp (OSK.TO) for C$2.6 billion ($2.4 billion) on Monday, in a move to gain control of Osisko's Malartic gold mine in Quebec.

The bid is the Canadian gold sector's first major attempt at a merger and acquisition deal in nearly a year. Miners stung by a 25 percent drop in the price of gold over the last 12 months have focused on cutting costs and slowing down work on growth projects.

The acquisition of the large, low-grade Malartic deposit would boost Goldcorp's proven and probable reserves by some 10 million ounces, but it also carries its own set of perils.
Will the ongoing low POG cause a string of acquisitions? According to the article the answer is no, but my spidey-senses tell me it could be otherwise. Time will tell.

Quote :
West does not see the Goldcorp proposal kicking off a wave of consolidation in the industry, in part because other large gold producers' share prices are depressed, and many are busy shoring up their existing operations.
rblong2us likes this.
Unobtanium is offline   Reply With Quote
Old 01-13-2014, 07:56 PM   #131
Golden Cockroach
 
PMBug's Avatar
 
Join Date: Oct 2011
Location: In Scrooge McDuck's vault
Posts: 7,028
Liked: 2449 times
They found one to buy that China didn't own? /sarc
Unobtanium and rblong2us like this.
__________________
The journey of a thousand miles begins with a single step. - Lao Tzu

Important stuff: PMBug 101 * Forum Guidelines * Support PMBug
PMBug is offline   Reply With Quote
Old 01-16-2014, 02:54 PM   #132
Ground Beetle
 
bushi's Avatar
 
Join Date: Nov 2011
Posts: 971
Liked: 554 times
Originally Posted by ancona View Post:

I would think that a mine owner makes a conservative assessment of the ultimate resources in the rock and spreads the cost of a lot of the major infrastructure across a number of years, based upon anticipated recoveries and initial investments/pay-out assumptions.
Yeah, they also doing stuff called "low-grading" "high-grading", depending on the current price of gold. Basically, mine will have different ore grades on their inventory. When the price of gold is high, they would concentrate on lower-grade ore mining, because they can still economically mine it, turning some assumed profit-supplied by the relatively high gold price.
Opposite, when the price of gold falls, mine operator will focus on high-grading; leaving lower grade ores dormant.

So there is some flexibility, to maintain profits/stay afloat for a period of time, when price of gold falls. Of course, since high-grading lowers REMAINING average ore grade for a mine, there's a risk, that high-grading, while keeping the mine open for a while, ultimately, will make MORE of mine's reserves economically non viable - simply, because normally, they mix high-grade and low-grade ores, to achieve perfect "mix", allowing to mine economically maximum amount of mine's reserves -that including lower grade ores, otherwise impossible to tap on.

...there's no free lunch :-)

Sent from my SM-N9005 using Tapatalk
__________________
“...the issue which has swept down the centuries and will have to be fought sooner or later is the People versus the Banks.
Lord Acton
bushi is offline   Reply With Quote
Old 02-04-2014, 06:22 PM   #133
Big-eyed bug
 
Unobtanium's Avatar
 
Join Date: Nov 2011
Posts: 451
Liked: 344 times
Originally Posted by Unobtanium View Post:
Tinfoil hat = on.

We have seen charts that show the major banks recently positioning from net short to net long in gold.

Keeping this in mind, does anyone think that TPTB have not only driven the POG and POS down to cover their shorts, but also to drive it down so far that they might purposely drive some of the miners out of business?

Wouldn't this match with what they have been doing in the retail market for decades now: Drive away the smaller grocery stores, hardware stores, department stores, local banks,etc via extra-low mega-store prices, buyouts and mergers. What we are left with is a small selection of mega-retailers, owned by the cronies of TPTB. I am also seeing this happen for the past two decades with technology companies in my field.

Why wouldn't they want to continue this trend with mining companies? Drive the smaller ones out of business and/or buy them out when they are in dire straits, such that in the end, they own all the mines.

Thirdly, driving some of the miners out of business is a good catalyst for the POG and POS to slingshot upward now that they have gone net long.

Tinfoil hat = off.
My apologies for bad forum etiquette of replying to my own post, but here goes:

http://sprottglobal.com/thoughts/art...e-it-to-summer/

Quote :
Sprott's Thoughts
Monday, February 3, 2014
Henry Bonner
Will Your Gold Juniors Make it to Summer?


“These are sobering times,” Michael Kosowan told a Cambridge House audience in Vancouver on January 20th. Michael has worked for Rick Rule at Sprott Global Resource Investments Ltd. for 13 years and is now located in Sprott’s Toronto office. Like Rick, he has made a fortune for himself betting on contrarian ideas in bear markets… But Michael has a warning about 2014 in his speech below…

There has been a collective exhale as the mining sector began 2014, marching into the New Year with a strong up move in gold and high hopes of a recovery.

Although there have been a few bright spots as gold reached $1,275 by January 26, the ‘bonfire of the juniors’ has yet to occur. Endangered companies fight tooth and nail merely to survive.

There are just too many companies out there with too little cash. According to John Kaiser, a mining analyst who has been following the sector for over 25 years, 1,025 companies out of a possible 1,770 trade below 10 cents a share while 817 of these companies have less than $200,000 left in capital.

So What’s Coming?

The big crisis point could come in April and May of this year when the audited financials must be filed with SEDAR. Credit that was extended in 2013 is unlikely to be extended in 2014, forcing management to dig into their own pockets which could precipitate a flurry of de-listings.

The current economic reality has fashioned a quality-control system, albeit somewhat crude and often brutal. The inherently weak or flawed juniors will likely be removed, leaving a leaner and fitter sector that will be easier to navigate. The very first to go will be the ones that never should have made it to the party in the first place - those built on dreams of a get rich quick scheme, usually by ambitious but misguided geologists without enough experience.

They will not be easily saved through mergers and acquisitions either. Most seniors have frozen their M&A activity following an abysmal year of heart-wrenching write-downs and impairments.

The seniors remain timid and many will be licking their wounds for a while, even though the damage to their balance sheets is self-inflicted. Overall, they are not taking advantage of the lower prices to buy juniors; they are cautious and unaggressive this time around and are being decidedly more discerning when it comes to acquisitions.

The New Reality for Exploration

New finds are going to become ever more critical for the industry's future, but exploration is becoming both more complex and costly. A combination of decreased funding and more difficult exploration targets makes it unlikely that we will see many new legitimate discoveries this year. Should one occur the resulting localized success will surely serve to baffle and confuse investors, who might interpret one exploration win as a signal that the juniors are all moving up. In fact, some companies can be headed higher while most of the remaining companies continue their descent.

Get ‘Something for Nothing’

Nonetheless, some miners have taken advantage of this situation by extracting favorable terms from junior companies at extremely competitive prices. We are seeing acquisitions made ‘at cost’ and not accounting for the expenses, headaches or risks that the company has overcome.

Because investment in exploration was relatively low over the past two decades, there are few high-grade projects out there to be ‘scooped up’ by a major. As a result, there are buying opportunities in companies that are not glaringly obvious in terms of grade, size, and ease of extraction.

This also puts a higher premium on the ability to scrutinize and assess these projects. Even the better-looking projects, for that matter, need to be held to stringent scrutiny as to whether they make financial sense!

2014 will be the year of sobriety and bifurcation. The weak will simply not survive; many companies will disappear. These are very sobering times.

The sector is still being culled and a rise in the price of gold will not necessarily save them; do not bet on a high tide floating all ships this time around.

Selectivity is key, which means having the best information and keeping a close eye on developments in the sector. We should expect a lot fewer companies in the space after 2014, and even by the summer, so the months ahead could prove to be a highly determinant period for investors in the sector.

http://sprottglobal.com/thoughts/art...steve-todoruk/

Quote :
Sprott's Thoughts
Friday, January 31, 2014
Henry Bonner


“Gold Price Going Up or Mines Will Close” Within 6 Months: Steve Todoruk

“After three painful years in gold prices and related stocks, have we hit the bottom? Will they head higher?” Steve Todoruk began a recent letter to his clients at Sprott Global Resource Investments Ltd. with these pressing questions.

His take is that either the metals will start going up in the next six months, or the big mining companies will have to close down a lot of their operations. That, in turn, could squeeze supply, initiating another long-term up move, but at a high cost to the producers.

So where are we headed next for precious metals and mining companies?

Big miners hesitate to cut production

“It all starts with the major mining companies,” says Steve. “These companies take on tremendous risk, along with their shareholders, in operating mines. Upfront infrastructure costs typically range in the billions and it takes years to permit and build them.”

Because of the long lifetime of a major mine – which can span several decades – miners must allow sufficient margin for their production to remain profitable over its lifetime. If prices crash and they lack the ability to maintain a margin, they might never generate sufficient return to get their money back.

There is also the risk of higher costs to produce the metals, through higher labor or equipment costs, for instance. Thus, as Steve says, “mines must make strong profits, because the more marginal the mine, the higher the risk that it could end up losing money.”

Because of these big upfront expenses, mining firms are highly reluctant to halt operations if they can avoid it. So they might keep a mine that is no longer making money -- or even losing some -- in production for a while.

“It is not a simple thing to shut down a mine,” he says. “You have to lay off all the miners, who may be under contractual obligations and part of a union. A lot of mines lease those big yellow mining trucks and shovels. The company will have to pay a lot of money to send all that equipment back to its owner.”

Even then, there would still be expenses associated with the non-productive mine. “With a lot of expensive equipment and infrastructure still at the mine site, they will have to keep some employees there for ‘care and maintenance’ in the hope that metal prices will rise at some point and they can re-open the mine.

"If they do re-start the mine, then they would have to re-hire all of the miners and bring back those trucks and shovels,” Steve explains.

All of these factors will cause a mine to run at a loss for a little while. But not for a long time.

“My guess is that mining companies will shut down money-losing operations in less than a year and maybe closer to six months,” says Steve.

What the miners are doing now: High-grading

There are a number of big mines in operation today whose average grade is unremarkable according to Steve, but contain areas of high-grade ore. Mining only these higher-grade sections could boost profits in the near term, but damage the economics of the mine over its mine life (we have discussed ‘high-grading’ here and here).

Companies will ‘high-grade’ their mines in order to demonstrate profitability to their shareholders, but as Steve explains, this can only work for so long.

“If metals prices stay low and the company gets to the point where they have mined all of the high grade, their only choice is to go back to mining the lower grade mineralization (if they have not already wrecked the overall mine plan), which is a money-losing proposition,” he says.

“When the mine gets to this point, the likely action is to shut it down. If lots of mines get to this point, then lots of mines start shutting down,” he warns.

Deep cuts to future production

Before closing down mines, the first step that big miners take is to delay new developments. Today, many projects are being put on hold, says Steve. These projects looked good at high metals prices, but the big miners have less money to spend and the economics are less attractive now.

“For instance, New Gold Corp. just announced that two of their planned new gold mines in Canada are uneconomic at today’s gold price. Therefore, it is highly likely that the company will cease plans of bringing them through to production for now,” says Steve.

“If we get to the point where lots of mines are closing, then simple supply and demand fundamentals will start kicking in; buyers will have to pay enough for the metals that the mining companies can turn a profit producing them. So we will either see lots of mines shutting down or gold prices going up, allowing mining operations to run at a profit.

“We are about six months into a low gold-price environment. That means something has got to give sometime in the next six months,” he concludes.

Steve Todoruk worked as a field geologist for major and junior mining exploration companies after he graduated with a B. Sc. in Geology from the University of British Columbia, in 1985. Steve joined Sprott Global Resource Investments Ltd. in 2003 as a Senior Investment Executive. To contact Steve, e-mail him at stodoruk@sprottglobal.com or call him at 1.800.477.7853.
PMBug and rblong2us like this.
Unobtanium is offline   Reply With Quote
Old 02-05-2014, 12:53 PM   #134
Yellow Jacket
 
rblong2us's Avatar
 
Join Date: Nov 2011
Location: off world
Posts: 1,971
Liked: 872 times
Henry Bonner is the son of Bill Bonner, whose Daily Reckoning is something I always look forward to reading.

Bill has always been quietly keen on gold but reckons patience is required.
I and many others have a lot of respect for Bill.

I hope Henry is able to wear the boots when the time comes.
ancona likes this.
__________________
if it cant be done with a digger .... it cant be done
rblong2us is offline   Reply With Quote
Old 11-19-2014, 07:52 PM   #135
Big-eyed bug
 
Unobtanium's Avatar
 
Join Date: Nov 2011
Posts: 451
Liked: 344 times
Originally Posted by Unobtanium View Post:
Tinfoil hat = on.

We have seen charts that show the major banks recently positioning from net short to net long in gold.

Keeping this in mind, does anyone think that TPTB have not only driven the POG and POS down to cover their shorts, but also to drive it down so far that they might purposely drive some of the miners out of business?

Wouldn't this match with what they have been doing in the retail market for decades now: Drive away the smaller grocery stores, hardware stores, department stores, local banks,etc via extra-low mega-store prices, buyouts and mergers. What we are left with is a small selection of mega-retailers, owned by the cronies of TPTB. I am also seeing this happen for the past two decades with technology companies in my field.

Why wouldn't they want to continue this trend with mining companies? Drive the smaller ones out of business and/or buy them out when they are in dire straits, such that in the end, they own all the mines.

Thirdly, driving some of the miners out of business is a good catalyst for the POG and POS to slingshot upward now that they have gone net long.

Tinfoil hat = off.
http://www.theaureport.com/pub/na/16369

Quote :
[snip]

The Gold Report: You've discussed in your newsletter Goldman Sachs' plan to "push gold [down] to $1,000/ounce" ($1,000/oz). How do you know such a plan exists?

Chen Lin: I am not a big fan of conspiracy theories, but Goldman published a report in early September calling for $1,000/oz gold by the end of 2014. As I saw it, this call was quite aggressive. Goldman will lead and probably has been leading a group shorting gold aggressively.

Kitco has published a report arguing that should gold fall to $1,000/oz, this would be catastrophic for most gold miners. The shorts, unfortunately, probably don't care about gold mining companies and the jobs of those who work for them. They just want to make money. If the gold miners go under, they'll be very happy.


TGR: We've heard about these short attacks for at least a year and a half. How long can they keep winning this game?

CL: That's a very good question. There is, however, another reason why gold has declined in price: its reverse correlation with the U.S. dollar. The dollar has recently been strong, so gold has been weak. And the shorts are making money on this.

I see the fall of gold from $1,900/oz to be a healthy correction. This creates buying opportunities for long-term investors. As I told my subscribers, I started to underweight gold and gold miners back in 2011–2012. I hope my subscribers took my advice and have survived this nuclear winter of gold miners. We continue to look for the bottom. This year, in particular, I have increased my efforts to visit gold mines and meet with gold mining company executives, so I can be prepared when the gold market turns.

TGR: The U.S. Federal Reserve is tapering quantitative easing (QE), but just recently the Bank of Japan announced an enormous QE plan. Shouldn't this be very good for gold?

CL: It should have been, but what happened was that Japan's QE lowered the value of the yen and strengthened the dollar. So investors sold gold on the QE news. It's a paper-market game. All these funds don't own gold at all. They're basically borrowing gold to short it. They borrow from some other place, maybe the central government, maybe from exchange-traded funds (ETFs), whatever, I do not know. This game will end, but the question is when.

TGR: What are we hearing about physical gold sales in Asia?

CL: Physical gold buying has been quite strong in China, although not as strong as last year, partly because China's economy has been slowing down. Gold buying in India has been very strong, and the Indian economy is actually picking up. These are the two largest gold-consuming countries. I believe that eventually physical demand will gradually absorb all the shorts' positions. Then the gold market will turn. China bought about 1,000 tons (1 Kt) of gold last year. The U.S. claims to have about 8 Kt gold. It's in Europe where there's a large position. So this turnaround will take a few years.


TGR: On Nov. 7, gold fell to a low of $1,130/oz. Then it rose $47 for the rest of the day to finish at $1,177/oz, a 3.15% increase. Was what happened that day a one-off, or does it perhaps suggest the bottom has been reached?

CL: I wish I could tell gold investors the good news that everyone is waiting for, but I'm not so sure. From the macroeconomic point of view, the U.S. dollar will likely be strong for the next two to three years because the U.S. economy is one of the strongest, if not the strongest, in the world. This year, the shorts may not be able to push gold all the way to $1,000/oz ahead of Christmas and the Chinese New Year, which is a very strong gold consuming season, but they may come back again next year in the summer.

.
.
.


TGR: Gold heading toward $1,000/oz has resulted already in decreased production, and this decrease will become significantly greater over time. Shouldn't this result in a significantly higher gold price?

CL: Over the long term it will. In the short term, however, there's a large quantity of gold in storage. Annual production is minimal compared to stored gold.


TGR: Do we really have any idea how much gold exists? If the world's gold is endlessly loaned out and rehypothecated, is this a shell game that can run and run?

CL: I don't know how much gold really exists. Many people put money in ETFs, which may not own gold. But most investors don't regard gold as a long-term investment; they regard it as a trading vehicle. This situation won't change until the world recognizes gold as currency.

TGR: You said that investors should look to gold companies that can produce positive cash flow at $1,000/oz. How many companies can actually achieve this?

CL: Not many. Gold at $1,000/oz could potentially bankrupt even companies as well run as Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE).


TGR: Can we expect a revaluation of the few companies able to profit at $1,000/oz gold?

CL: I'm not sure we will get a revaluation upward because it depends on investor perceptions of the gold mining sector, and that depends on the gold price. One thing for sure is that I sleep well at night holding these companies because even at $1,000/oz, they can flourish. And when the bottom happens, these companies with cash will be able to buy out the overleveraged companies.

.
.
.


TGR: The silver price has been falling. Isn't silver supposed to be insulated somewhat because of its use in industrial applications?

CL: About 50% of silver is used in industrial applications. At the current price, most of the silver miners are not making money. That blows my mind. But silver dropped to a few dollars in late 2008–2009, so I can see that silver could now potentially drop further. Silver will continue to be produced because it is mined mostly as a byproduct of base metals operations. If silver drops to single digits again, it's the buying opportunity of our lifetime.
PMBug and ancona like this.
Unobtanium is offline   Reply With Quote
Old 11-20-2014, 07:26 AM   #136
Golden Cockroach
 
PMBug's Avatar
 
Join Date: Oct 2011
Location: In Scrooge McDuck's vault
Posts: 7,028
Liked: 2449 times
These low prices don't appear to be sustainable. Physical is a bargain right now. If the miners do start folding, it's going to take a good while for production to ramp up when new miners come on the scene after prices return that offer a positive ROI.
__________________
The journey of a thousand miles begins with a single step. - Lao Tzu

Important stuff: PMBug 101 * Forum Guidelines * Support PMBug
PMBug is offline   Reply With Quote
Old 11-20-2014, 09:21 AM   #137
Yellow Jacket
 
ancona's Avatar
 
Join Date: Nov 2011
Location: Waaay south
Posts: 3,370
Liked: 2046 times
Aren't they killing the golden goose?

If the lower prices make metals un-mineable [is that a word?] then the miners stop producing, and that necessarily must force prices to rise to levels that would sustain profitable operations. And remember this as well, when you close down a mine, it is very, very expensive to do, then re-starting is another problem. There are massive regulatory hurdles to overcome, along with labor issues. When you lay off all the miners, the talent pool disperses to other jobs, leaving you to scramble for competent people. This can only end badly.
__________________
All things being equal, the simplest answer is quite often the correct answer - Occam
ancona is offline   Reply With Quote
Old 11-20-2014, 05:16 PM   #138
Yellow Jacket
 
rblong2us's Avatar
 
Join Date: Nov 2011
Location: off world
Posts: 1,971
Liked: 872 times
They do have some flexibility by mothballing / maintenance only or going after the reserves that give the greatest cash return but this will only buy time and at some point its game over. As Ancona says, when you loose your skilled workers its very hard to replace them in an upturn. On the other hand getting rid of the less good operatives and reducing to a core of good ops is ie downsizing, can keep a mine going for a while.

Miners do not give up easily. They have invested too much of themselves in that hole in the ground to shrug and walk away.
ancona likes this.
__________________
if it cant be done with a digger .... it cant be done
rblong2us is offline   Reply With Quote
Old 11-21-2014, 10:13 AM   #139
Yellow Jacket
 
ancona's Avatar
 
Join Date: Nov 2011
Location: Waaay south
Posts: 3,370
Liked: 2046 times
Rblong2us,
When we went through the massive downturn in '08, '09, '10, I lost over ninety well trained remediation and demolition workers. Some had worked here for over twenty years. Replacing them has taken three painful years and a shitload of money. For example, to give a guy the basic stuff, it costs me around 5 large, and that is without the learning curve in the field, just the basic classes, physicals and blood work. Now, I have to have a competent person teach that guy how shit is done in real time. That process can take from one to three years, depending upon how many disciplines he has been trained in. When I have to do a massive layoff, it costs me more than just my bottom line getting smaller, I lose that entire investment of training and time. When a fully trained guy is tasked with bringing four or five others up to speed, productivity is far less than a crew of well trained men simply hitting the site and blasting out some work.

We are currently facing the end of a huge year for our firm, one that is starting to look like an outlier in terms of workload, since I have not netted a whale for first quarter. With no anchor job in place, I will have to lay off over half my workforce sometime in January or early February.

The mines will have the same problem, only an order of magnitude more expensive. Those guys go through extensive MSHA classes and all sorts of PPE training, along with emergency training, mine collapse training, escape module [ELSA] training and much more. I imagine it costs somewhere north of 20 large to properly train a miner. When we're talking about explosive mining, it's a whole other world in terms of competency, training and direct costs. Never mind the lost revenue from a shut-down mine, there are a lot of basic costs that are expended before that guy digs a single shovel of dirt, or for that matter, before he ever enters a mine in the first place.

Millions upon millions are lost to the winds of fate that can never be recovered. Mothballing a mine is an option of course, but now you don't have all those trained workers that had to be laid off because some bankster needed to scrape another vig off of the shares before Christmas so he could afford that trip to Barbados he promised the kids.
PMBug, rblong2us and Chigg like this.
__________________
All things being equal, the simplest answer is quite often the correct answer - Occam

Last edited by ancona; 11-21-2014 at 11:46 AM.
ancona is offline   Reply With Quote
Old 03-30-2015, 11:38 AM   #140
Golden Cockroach
 
PMBug's Avatar
 
Join Date: Oct 2011
Location: In Scrooge McDuck's vault
Posts: 7,028
Liked: 2449 times
Quote :
  • Goldman warns that peak gold may happen in 2015
  • New report says there are only “20 years of known mineable reserves of gold”
  • Discoveries of new sources of gold production peaked in 1995 despite major bull market
  • Production lags new finds in 20 year cycle – Indicates 2015 may be year of peak gold production
  • Production in major gold mining countries has dropped in recent years
  • This will provide support and should lead to higher prices in long term
http://www.goldcore.com/us/gold-blog...ld-production/
Unobtanium likes this.
__________________
The journey of a thousand miles begins with a single step. - Lao Tzu

Important stuff: PMBug 101 * Forum Guidelines * Support PMBug
PMBug is offline   Reply With Quote
Reply

Thread Tools

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are On
Pingbacks are On
Refbacks are On


Similar Threads
Thread Thread Starter Forum Replies Last Post
Dr Copper building potential head and shoulders formation swissaustrian STS 23 04-18-2013 07:48 AM
The price of dollars in gold Unobtanium PM Bug 2 05-07-2012 07:11 AM
Junior miners priced for $400 gold, Got Gold Report's Arensberg writes swissaustrian Mining 1 11-29-2011 02:18 PM
Tomorrow's Monster Outperformers: Miners of Gold and Silver PMBug Mining 1 11-10-2011 07:49 AM
Which Gold Miners Have Largest Upside? DSAbug Mining 0 11-03-2011 11:11 AM


All times are GMT -5. The time now is 07:56 AM.


Powered by vBulletin® from Jelsoft Enterprises Ltd.
Content Relevant URLs by vBSEO 3.6.0 PL2 ©2011, Crawlability, Inc.
Content of PMBug.com copyright © 2011 - 2019 Measuring Up. All Rights Reserved.