Miners will need $3,000 gold price to be profitable, WGC head says

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:

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.
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". :)

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.

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?".

Possibly one of the more important functions of this site ?
Here, here!
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.

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.
Advances in technology is actually pushing the cost of food down.


"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."

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!
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.


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.”
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.
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."
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:

Goldcorp offers C$2.6 billion to acquire Osisko Mining


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.

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.
They found one to buy that China didn't own? /sarc
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
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:


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.


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.
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.
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.



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.
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.
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.
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.
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.
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  • 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

As mines close down and experienced miners are lost to unemployment, there will be problems with any future production as a result. When the world came apart in '08, we lost a hell of a lot of cross trained employees.
These employees cost several thousand each to train, yet when we laid them off because of a lack of work, they went elsewhere. When work picked back up last year, we had to train a whole new crop of people and did so at no small expense.

These mines, once closed down, will be extraordinarily expensive to re-open.
Sucks for them. China needs it's gold so the G20 can start the NWO in monetary policy. (apparently)
For the first five months of the year, (Jan-May), U.S. gold production is down 10%, from 85.3 mt in 2014 to 76.9 mt currently. The majority of declines came out of Nevada. Gold production in Nevada fell from 61.8 mt Jan-May 2014, to 56.1 mt this year.

If current trends continue, U.S. gold production will fall below 200 mt in 2015. Last year, the U.S. produced 210 mt of gold (according to the USGS), so a 10% decline would amount to 21 mt. Thus, overall U.S. gold mine supply could fall to 190 mt in 2015.

The last time U.S. gold production was below 200 mt was 28 years ago in 1987 ...

... Basically, U.S. gold production hasn’t been this low for nearly three decades. ...

More (incl. charts): http://srsroccoreport.com/u-s-gold-...production-finally-hit-hard-due-to-low-price/
Gold output has peaked in this commodities cycle, according to mining industry leaders and analysts who say few big projects will reach the point of production amid falling prices.

The lack of new assets and declining output at existing mines is expected to curb gold supply, a glimmer of hope for surviving producers of the precious metal in an industry coming to terms with a rush of investment when prices were far higher.

Kelvin Dushnisky, president of Barrick Gold, the world's largest gold miner by annual output, said: "Falling grades and production levels, a lack of new discoveries, and extended project development timelines are bullish for the medium and long-term gold price outlook."
According to Thomson Reuters' GFMS metals research team, global production of gold is expected to fall 3 per cent this year, ending a seven-year period of rising output. GFMS expects gold mine production in 2015 to have risen 1 per cent to a record 3,155 tonnes.

The end of the gold bull market has prompted some miners to abandon growth projects, while ore grades across the industry have been falling as mines become depleted. The strike rate in finding significant deposits has also declined and most mining companies are struggling to attract investment to develop projects.

Mr Nesis said: "The fourth quarter last year was in my opinion the peak quarter for fresh global mine supply. ... I think supply will drop by 15 to 20 per cent over the next three to four years."

Interesting tidbit about recent lack of gold mining deposit discoveries due to lack of exploration budgets:


Yet another MAJOR reason to buy gold
Simon Black January 14, 2019

For almost a year now, I’ve been advising you that gold production is plunging…

By itself, declining gold production isn’t a huge deal.

It takes hundreds of millions of years for minerals to form deep in the earth’s crust… but humans only need a few decades to extract it.

That’s why mining companies need to constantly explore for new deposits.

And that’s where the problem comes in… mining companies haven’t been exploring.

Large mining companies have been cutting their exploration budgets for years. By the end of 2016, exploration budgets hit an 11-year low.

Part of the reason for the decline in exploration has been the stagnant gold price and general, investor disinterest toward the gold mining sector.

If you look at a chart of the Gold Miners ETF (GDX), the price hasn’t gone anywhere for five years.

And gold prices have likewise languished; today’s price of $1,290 per ounce is down 30% from the 2011.

To fight the tough times, miners slashed their exploration budgets.

That means, when the demand for gold picks up again (which I think we’re starting to see now), there won’t be enough gold supply.

You don’t have to just take my word for it…

Pierre Lassonde, the billionaire founder of gold royalty giant Franco-Nevada and former head of Newmont Mining –

If you look back to the 70s, 80s and 90s, in every one of those decades, the industry found at least one 50+ million-ounce gold deposit, at least ten 30+ million ounce deposits, and countless 5 to 10 million ounce deposits.

But if you look at the last 15 years, we found no 50-million-ounce deposit, no 30 million ounce deposit and only very few 15 million ounce deposits.

So where are those great big deposits we found in the past? How are they going to be replaced? We don’t know.

Lassonde isn’t the big gold player warning about the falling gold production. You can read some other warnings in this piece I wrote in July of last year.

One of the legends we quoted was Ian Telfer, chairman of Goldcorp, who told the Financial Post:

“If I could give one sentence about the gold mining business … it’s that in my life, gold produced from mines has gone up pretty steadily for 40 years. Well, either this year it starts to go down, or next year it starts to go down, or it’s already going down… We’re right at peak gold here.”

If gold production is peaking, and the mining companies aren’t spending money to find new deposits, that means one thing… when demand picks up, we’ll see a wave of consolidation in the industry.

Mining companies will be forced to acquire one another in order increase their production and meet a rising gold demand.

These consolidations are already happening. Literally just today, Telfer’s $8.5 billion Goldcorp was acquired by Newmont Mining for $10 billion.

This isn’t the first deal like this: back in September, Barrick Gold bought Randgold Resources in a $6 billion deal.

This is exactly what you’d expect to see in an era where gold miners are acquiring each other and consolidating their production.

And all of this should be quite favorable for gold prices over the long-term.

Now, at least for me, gold has never really been an investment. I don’t trade paper currency for gold, hoping to trade gold back for more paper currency down the road.

Instead, gold for me has always been always a hedge against all the risks in the world that just don’t make sense.

And there are plenty of those:

The US debt is now nearly $22 trillion and growing at more than $1 trillion a year.

Interest rates across the world’s other largest economies– Europe and Japan– are still negative. China is rapidly slowing.

Governments around the world, it seems, are in a coordinated effort to destroy paper money and inflate their massive debts away.

Meanwhile, interest rates are slowly rising from the bottom, putting the huge stock and bond rally of the past decade at risk.

All of these are very prudent reasons to own gold.

And with today’s news, we’ve now seen several of the largest gold miners in the world spending a combined $16 billion to increase their gold reserves. They’re admitting there’s a big shortage of the metal. And this trend is just getting started.
It could be argued that after 7 years of the gold market not really doing anything, selling up while theres still a few big players to sell to might make some sense ?

Mainstream thinking seems to be that gold is now an irrelevance. Its only those who watch more closely, see how the price is held down and ask why, who can agree with Simon Black.
Thanks Unobtanium, that was timely. We're seeing stage 2 of the fallout from the economic stress in the mining sector with the mergers/consolidations. They are struggling to stay viable.

With central banks starting to buy again, gold is really poised for a supply shock in the near future.
Another miner likely to see lower production ahead:
... Saddled with Mponeng, the world’s deepest mine in a dying South African industry that’s struggling to contain costs, the third-biggest producer could boost its value by leaving the country, according to Rene Hochreiter, analyst at Noah Capital Markets Ltd. in Johannesburg.

“Their best bet is to get out of South Africa and leave Mponeng behind,” he said. “The costs never come down in South African gold.”

That would be the final step in AngloGold’s gradual withdrawal from South Africa. The country contributed just 14 percent of its output in the third quarter of last year, down from 26 percent a year earlier, after the company sold and shut mines to stem losses.

Gold’s dimming supply prospects have caught the eye of one billionaire.

“For the first time in my life, I bought gold because it is a good hedge,” Sam Zell, the founder of Equity Group Investments, said in a Bloomberg TV interview. “Supply is shrinking and that is going to have a positive impact on the price.”

Spending on new mines began to dry up after prices of the metal tumbled from a record in 2011, clouding the outlook for production. With gold still down by almost a third from its peak, the biggest miners are just looking at buying their competitors in a bid to bolster their output pipeline.

“The amount of capital being put into new gold mines is a most nonexistent,” Zell said. “All of the money is being used to buy up rivals.”

The combined gold reserves still buried in mines -- an indicator of production prospects-- shrank by more than 40 percent in 2017, from its peak after companies cut spending on exploration and development of new projects, according to Bloomberg Intelligence data on big producers.

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