Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Don Lloyd who wrote (67337)	4/8/2001 6:09:13 AM
From: goldsheet	Respond to of 116791

> Is it possible that some of the current weakness in gold may be the result of more modest advances in the economics of recovery methods? Highly probable (IMHO) I'm one of those who thinks a very large portion of gold price is determined by basic supply/demand. Heap leaching technology was more than a modest advance, helping to take gold production from 1200mt in the mid-to-late 1970s, to over 2500mt today, more than double. > Alternately, was there a large increase in gold mining investments around the time that gold peaked? Sure, but by the time the projects were in production prices has already dropped. The investments made at the 79-80 peak did not show up in increased production until about 83/84. Likewise when gold ran up in 92/93 projects became viable, but did not show up in production until 96/97 (after the peak) Once you have sunk the capital, one does not walk away easily, which is why gold production has not declined much despite lower prices. > Does a reasonable percentage of current mining output come from mines that have significant historical amounts of past lost sunk costs as previous owners have gone into bankruptcy or liquidated their investments at fire sale levels? Most big mining projects have one owner for the life of the mine, although they may take huge write-offs along the way. Projects get restructured, re-engineering, sometimes sold or closed, but bankruptcy and liquidations are infrequent. I think some of the old projects have very different cost structures than current projects. 20 years ago it may have cost you $50/ounce in capital and $150 in cash costs to mine gold. Projects are bigger and more capital intensive, but cash costs are less, so you might have a mine with $150/ounce in capital and $50 cash. Once you have built the $1 billion mine, you will keep mining all the way down to $50 gold !! Cash flow is positive, and you owe the bank a lot of money and interest, unless you used a gold loan to finance the mine <g>

To: Don Lloyd who wrote (67337)	4/8/2001 10:56:03 AM
From: russwinter	Read Replies (1) \| Respond to 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.