Unobtanium
Big Eyed Bug
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fantastic graph! I presume, the width of each bar represents producer's share in the global production?
It was not explained in the article, but that was my conclusion too.
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fantastic graph! I presume, the width of each bar represents producer's share in the global production?
AngloGold Ashanti, the world’s third biggest gold producer, said it would produce 4m to 4.1m ounces of gold this year, rather than the 4.1m to 4.4m ounces previously planned, in response to the fall in its product’s price
When asked about the prospect of gold mining stocks at this time, Mark commented that,
“Companies should fail by the hundreds and production will fall dramatically unless the gold price improves quickly…our analysis…is the price of gold that will produce a zero number in the current free cash flow column for the whole industry (i.e. breakeven, cash neutrality)…it’s $1750 an ounce.”
Every single [expense] of a mining company needs to be taken into account [and] divided by the amount of ounces you’re digging out of the ground…oil is at $109 and climbing, labor unions are demanding more money and the cost of regulation keeps going up.
[So] today with gold trading at $1300 an ounce and production at $1750 and climbing, gold is trading at 75% of its production cost—and that has never happened before.
When gold traded to $800 an ounce in 1980, the cost of extraction was $100 an ounce. So gold traded eight times its production costs. Now that’s a bubble.”
jeez.. the cost of production isn't close to $1750 so i have no idea where he's pulling that number. I look at my sheet of JUNIORS and I see very few over 1100. I have names with 400 per ounce production cost as well.
I think these guys are seeing that the miners are beaten up and are trying to explain it. They are probably upside down on his gold/silver investments and is fishing for a bullish catalyst. Since everyone hates gold miners, they are easy to pick on right now. IMHO they are being way too doomsday about their prospects. Since 1900, the gold miners have been this oversold 4 times. Those were lows, not the beginning of a decline.
Yes, I thought 1750 was high too, but the interesting point that I got out of this was the contrast in the mining cost vs POG around 1980 vs that same ratio today.
jeez.. the cost of production isn't close to $1750 so i have no idea where he's pulling that number. I look at my sheet of JUNIORS and I see very few over 1100. I have names with 400 per ounce production cost as well.
I think these guys are seeing that the miners are beaten up and are trying to explain it. They are probably upside down on his gold/silver investments and is fishing for a bullish catalyst. Since everyone hates gold miners, they are easy to pick on right now. IMHO they are being way too doomsday about their prospects. Since 1900, the gold miners have been this oversold 4 times. Those were lows, not the beginning of a decline.
US gold miner Newmont has made heavy write-offs against its Australian mines - Boddington and Tanami - totalling $US1.5 billion ($1.62 billion) following the slump in the gold price.
The group is in the process of cutting its global workforce by a third as it seeks to ensure it can survive with the downturn.
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Goldcorp Inc. reported an enormous net loss of US$1.93-billion in the second quarter after taking a big writedown on the Penasquito mine in Mexico.
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The US$1.96-billion writedown reflects the exploration potential of Penasquito, Vancouver-based Goldcorp said. It is the company’s first major impairment charge this year, as it previously avoided the writedowns that have plagued competitors like Barrick Gold Corp. and Kinross Gold Corp.
“Penasquito continues to possess strong exploration upside, but due to lower metals prices, the current in situ market value of exploration potential has decreased significantly,” chief executive Chuck Jeannes said in a statement.
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Goldcorp And Why Gold Miners Are Getting Crushed: Massive Cost Inflation, Dropping Prices
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Goldcorp expects total cash costs of $1,000 to $1,100 per ounce on an all-in sustaining cost basis.
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Mines with all-in costs above $1,000 an ounce contribute about 25 per cent of Barrick’s expected 2013 gold production. Mr. Sokalsky said he is “prepared to make the tough decisions. Our goal is to significantly reduce the percentage of mines in our portfolio that are above $1,000 per ounce and we're working on the plans to do that.”
..such as Porgera, its major Australian project, which posted an all-in sustaining cost of $1,306 per ounce in the second quarter. (All-in sustaining costs include labour, administrative fees and exploration expenses, among others.) Barrick’s share of African Barrick Gold assets, which the company spun off in 2010, also weighs on profitability with all-in sustaining costs of $1,550 to $1,600 per ounce.
Obviously, there will be pain for those who hold shares in these companies, but they have no choice but to cut off those mines that are operating above the spot price of metal.
National Union of Mineworkers (NUM) spokesman Lesiba Seshoka said the union would be consulting its gold industry members over strike action in the next few days.
"The earliest we will issue companies with notice of the strike is Monday next week," he said.
With such notice normally being given 48 hours in advance of any action, this meant that a stoppage in the gold industry, which is the country's biggest export earner, could start on Wednesday.
The search is on for profitable precious metals operators - Mills
The stark reality for gold miners (and their investors) is that the capital costs of construction (Capex) and the daily cost of operations (Opex) have escalated significantly.
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A complete breakdown of costs, an “all-in” cost figure, courtesy of CIBC, shows cash operating costs pegged at $700 an ounce. Sustaining capital, construction capital, discovery costs and overhead at $600. Add in $200 for taxes and you get US$1500.00 as the replacement cost for an ounce of gold.
Scotiabank calculates “full cost reporting” (all-in cost plus development capital), at US$1,458 per gold oz for the companies it covers.
“Complete cost reporting” is full cost plus corporate taxes, it’s forecast for 2013 at an average of US$1,690 per oz. gold.
Dundee Capital Markets reported that the average all-in cash cost in Dundee’s silver equities coverage universe was $22.96 per ounce during the second quarter. Dundee’s all-in cash cost calculation includes: site operating costs, exploration, corporate G&A, interest costs, royalties, taxes and sustaining capital.
Using the all-in figure provides a more accurate and definitive picture of actual mining cost and profit.
Below is a graph and a snippet from an excellent interview Joachim Berlenbach did with The Gold Report…
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... We now have 109 mining companies in our ‘club list’ whose share price has fallen by 90% or more since the heady days of 2010/2011 when the gold mining conferences were standing room only.
... any stock that is down more than 90% is most probably going to be down 100% soon enough and turning the lights off. ...
... The reason why mining companies are falling by 70-100% in the hundreds now is very simple. In our analysis, it costs over $1750 to mine an ounce of gold if you add in all the costs of running a mining company, not the published cash costs or the all in sustaining costs. The mining industry can argue till they are blue in the face that their costs are $800 or $1200/ ounce but if you only produce negative cash flow (that’s a LOSS to the non-analysts) when gold is below $1750, then it’s pretty clear in my books what is happening. ...
Output from the world's gold mines is set to hit record highs this year, disappointing bulls who are impatiently waiting for production cuts following this year's 24 percent plunge in prices.
Some gold miners have felt the squeeze of lower prices this year, and a number, including Canada's Kinross and Russia's Polymetal, suspended marginal mines and projects after a dramatic first-half price drop.
But as prices fall, others are actually increasing output to maintain revenue and profit levels. In some cases, they are targeting higher grade ore to keep marginal mines operating and generating cash, at the expense of future production.
Furthermore, several large projects put into motion during gold's 12-year rally, which took it as high as $1,920 an ounce in 2011, are coming to fruition.
"Our expectation is that we're going to see a fresh record high in gold mining output this year," GFMS analyst William Tankard said.
"What we're seeing is an ongoing response not to the slide in prices, but the decade-long stretch of fairly heavy capital investment into the mining industry that preceded it."
The world's top three gold miners - Barrick Gold, Newmont Mining and AngloGold Ashanti - all reported higher production in the most recent quarter.
For some marginal mines, firms are planning to tap better grades up front, a practice known as high-grading, which often comes at the expense of shortening the life of a project and giving up lower grade ore that could have been economic later.
African Barrick Gold, for example, re-engineered its lowest grade and highest cost mine, Buzwagi, to tap higher grades and move less material, hoping to ensure the operation generates cash.
"In the short term, when they have got flexibility, you can see companies changing the ore mix to keep themselves operating," Nomura analyst Tyler Broda said.
"It costs money to shut things down."
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Output from the world's gold mines is set to hit record highs this year, disappointing bulls who are impatiently waiting for production cuts following this year's 24 percent plunge in prices.
"Our expectation is that we're going to see a fresh record high in gold mining output this year," GFMS analyst William Tankard said.
The world's top three gold miners - Barrick Gold, Newmont Mining and AngloGold Ashanti - all reported higher production in the most recent quarter.
But as prices fall, others are actually increasing output to maintain revenue and profit levels. In some cases, they are targeting higher grade ore to keep marginal mines operating and generating cash, at the expense of future production.
For some marginal mines, firms are planning to tap better grades up front, a practice known as high-grading, which often comes at the expense of shortening the life of a project and giving up lower grade ore that could have been economic later.
Ground Control to Major Tom: Reserves Are in Jeopardy
Jeff Clark, Senior Precious Metals Analyst
http://www.caseyresearch.com/cdd/gro...re-in-jeopardy
High Grading
However, there's another phenomenon at work that will conspire to lower reserves: high grading.
Many projects have both low-grade and high-grade zones. When prices fall, a company can mine the richer ore and still make money. It may sound shortsighted, but it can be the right thing to do to stay profitable and be able to survive and advance in a temporarily weak price environment. But it does impact reserves, maybe more than you realize…
When metals prices are low and companies focus on high-grade ore, the low-grade material is temporarily bypassed. It's still physically there, but not only is it not economic at lower metals prices, it may never get mined at all.
That's because some low-grade ore only "works" when it's mixed with high-grade ore. Even when gold moves back up to the price that the low-grade ore needed to be economic when mixed with the higher-grade ore, it doesn't matter, because the high-grade ore is gone. So it's not just gone legally, as per regulatory definitions of mining reserves, it may be economically gone for good.
Miners could return to some of these zones in a very high gold price environment (something north of $2,000), but that's a concern for another day. The point for now is that many of today's low-grade zones can no longer be counted as reserves.
It is maddening to read articles about mines going dormant and so forth because of low gold prices. I can't figure out why these guys won't/can't hold back what they produce until prices get to where it becomes profitable for them to mine.
It would seem to me that the miners should be the ones controlling price, not the paper pushers, because after all, without the miners there is not gold. I can understand the whole idea of how paper prices can cause major fluctuations in speculative gold and silver vehicles, but if I were a mine owner producing a hundred tons a year, i would merely hold out for a price that would cover operations and provide for a nice profit. perhaps if enough miners got together and announced that until the paper shenanigans stopped, no one would get any gold, things would turn around.
"It costs money to shut things down."
I agree with your concept above, but in reality it seems that taking a mine offline for some period of time and then firing it back up is somewhat involved, complex, and costly.
I begin to wonder if this article was written with a bias ...
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Metals consultancy Metals Focus says it expects gold mine output to break through 3,000 tonnes a year in 2014 for the first time. That compares with an estimated 2013 output of 2,920 tonnes and 2012's 2,861 tonnes, according to GFMS.
Gold production could start moderating in 2015.
"That's the point when you will start to see some cost-cutting closures," Metals Focus analyst Oliver Heathman said. "Depending on the mines, they can sustain a period of high grading. The bulk of mines are still profitable on a cash cost basis at $1,000 an ounce, but not on a prolonged basis."
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The important thing to understand in my opinion is that the gold and silver miners are forced to CUT THEIR NOSE OFF TO SPITE THEIR FACE. ...
Welcome to the Bug Steve.
Thanks for your comments, and I do agree heartily with your comments about the POG being strongly tied to energy costs.
What are your thoughts about the POG also being tied to the average ore grade in decline over the past many years?
We then have two forces on the POG increasing - energy costs increasing and average ore grades declining, meaning more energy expended per ounce of gold mined.
Other factors are also bound to become stronger factors also, such as extreme fiat printing and an ever increasing demand for physical from China and India (although Indian demand is presently being curbed through governmental controls).
The one curve that the POG seems to follow closely in parallel is the US Debt ceiling, but I am not sure if that is happenstance, whereas the real driver is the cost of energy as you mention.
I would love to see a curve of the cost of oil overlaid with the price of gold for the past two decades. I will see if I can get one posted if I get some time.
I think we all agree that crunch time could be coming soon with the POG if things keep proceeding on the track they are now.
Cheers,
Unob
Why low gold prices first lead to production rises before falling
The gold price goes down, mines are closing yet global gold production is rising. Surely a contradiction? What is the reason?
Author: Lawrence Williams
Posted: Monday , 18 Nov 2013
LONDON (Mineweb) -
Investors may become a little puzzled when they see reports prepared by respectable analytical bodies that suggest that annual mined gold output this year is likely to beat last year’s total. Surely, continuing low gold prices, with perhaps half the world's mires at or close to breakeven or below on an all-in-sustaining costs basis have led to mine closures (we have already seen some) and a slowdown in expansions and in new projects being developed?
All the above is true! Ultimately a prolonged period of low gold prices will indeed likely see a fall in global output of the precious metal. Mines will close and new projects will be put on hold, but it would have taken time for these to come on stream anyway Natural wastage will take effect as old mines close through depletion of reserves while the new project delays will mean the production from the closures will not necessarily be replaced.
But short term – and by short term I am looking here at a one to two year period , or perhaps even longer – gold production will indeed rise. The rises are already set in place. Those big new projects which have been built over the past decade are still coming on stream, while those companies with operating mines, which have the capability to do so – mainly the larger operations - will just push higher grade ore through their mills at the existing milling rate in order to preserve revenues, although in many cases at the expense of shortening mine life.
In this way, at least the operation can carry on working without draining corporate cash resources. The mines which will close, though, if the gold price slump continues, will largely be at the lower end of the gold production table and will thus not lead to a big enough fall in production initially to counter the additional output from high grading and the new mines already under way.
For gold producers, nowadays under strong pressure from institutional investors and shareholders to cut capital and operating costs, it also looks good in company financial and production reports in that higher gold output without having to add new mining and milling equipment, leads to a reduction in unit costs and an improvement in free cash flow.
Miners will need $3,000 gold price to be profitable, WGC head says
Submitted by cpowell on Tue, 2012-05-15 13:42. Section: Daily Dispatches
From Reuters
Monday, May 14, 2012
Sharp increases in mining costs mean gold will need to reach $3,000 an ounce in five years for the industry to stay profitable, World Gold Council chief executive Aram Shishmanian said on Monday.