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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host
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To: sea_biscuit who wrote (2146)11/17/1997 11:56:00 PM
From: Gary D  Read Replies (1) of 42834
 
Re: your question on Barrick Gold's 36-fold increase despite the sliding price of gold.

>>Maybe gold itself is not a good investment but gold-mining companies like Barrick Gold perhaps are?<<

I don't know specifically about the Gold mining business, but generally the profitability of mining and oil&gas exploration and production companies is a strong function of the cost of "finding" and "extraction". If a company owns or discovers a deposit that is relatively cheap to produce, that company has an advantage and could be highly profitable even in an environment of falling prices for the commodity.

Or if technologies are developed that radically reduce the cost of finding and/or production, an entire industry could continue to prosper even in a bearish environment for the commodity price. An example is that even though the price of oil has fallen since the early 80's, new exploration technology has reduced finding costs (fewer dry holes) significantly, so oil exploration in many areas remains profitable today at prices that would have been unattractive 15 years ago.

So to evaluate a specific company one would need to look at its overall cost of production versus the price of the commodity--different companies could have radically different profiles.

Regards, Gary D
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