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Gold/Mining/Energy : Gold Price Monitor

GDXJ 108.28

-0.9%

Dec 1 4:00 PM EST

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To: Don Lloyd who wrote (67337)	4/8/2001 10:56:03 AM
From: russwinter	Read Replies (1) of 116791

I would argue that the next production cycle in gold will be exceptionally weak, even if we can clear 350 POG (and more importantly stay there). If gold can't clear 350 in the next two years, I see production completely collapsing (add copper to that using a $1.00 hurdle) within the next half decade. And it's not just the skinny returns over cash costs that is the problem, it's depletion. Finding and mining economic gold is a very difficult process. I'm not buying into the "alchemy theory". And the more I've evaluated individual projects, the more I've come to realize what bad straits this industry is in at these prices. I call it "eating your young". Open pit leaching has changed the economics, but this approach requires an aggressive and expensive exploration approach that 260 POG simply doesn't support. A successful open pit mine needs concentrated near surface oxide ore. Even when found, this ore class is a smaller and shorter life deposit. Large (over 5 million ounce: 15 year life) leaching type deposits are very rare. Because of this fact mining it at this price just becomes an exercise in futility. You can't ever get ahead of the curve without extreme good fortune. There are a couple handfuls of available deposits (which I own) from the 95-97 exploration boom around that could work at 300 POG, but not much else on the horizon. Underground economics are even worse. Case in point is a true world class mine like MDG's El Penon (1.5 million contained ounces). As profitable as it is now, at current rates this reserve will be completely depleted by 2006. The problem is that the ore consists of narrow high grade veins and to prove up more requires very expensive and extensive narrow spaced drilling. At today's prices they need to come up sevens or elevens on every roll to make it work. Another illustration of how difficult this process is would be PDG's South Deep and Getchell projects. So far Great Basin has found a million ounces of this deposit type right on the Carlin Trend, and the market verdict has been that even this one is a dud. ca.finance.yahoo.com IMO most of the technology advances in gold mining will come in the environmental and restoration arena. If anything lower costs there might actually encourage marginal production to be closed down as miners can more easily afford to bite the bullet and move on.

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