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

To: Ken Benes who wrote (70716)	5/30/2001 12:18:45 PM
From: russwinter	Read Replies (1) \| Respond to of 116762

<producers are ready willing an able to increase production at the slightest hint of an increase in demand> Nonsense, the only reason production isn't in a freefall is that they are still working off the last of their old higher priced hedging heroin fixes. If you don't believe me, how about FN's Pierre Lassonde. On the state of the industry in a talk last night in Istanbul. thebulliondesk.com Slides: thebulliondesk.com Main points: When hedge gains are removed not a single company apart from FN comes close to covering cost of capital. He felt the top 3 companies in gold mining are financial firms (and poorly performing ones) not miners (I think you've heard me say that more than once). 20% or US 4.3 billion of industry book value has been written off. If reserves were calculated at 265 there would be much more. (Heard me say that more than once). Taking NAV of the nine largest gold companies using 275 POG and a 5% discounted cash flow the public is willing to pay on average DOUBLE what these stocks are worth (see slide 6 for the company specific numbers). Premium takeovers are not likely. (Once more, great minds think alike). One would think instead that seniors would use their overpriced currency to purchase select juniors or mid-caps that do have reasonable valuations. However (important, see slide 7), few companies have the working capital to develop new projects. All the major gold co. will be closing down mines in the next five years. Ore reserves are diminishing and environmental liabilities (another reason why high cost, short lived, shut in mines are unlikely to reopen at higher POG)are being moved forward. New deposits: Not economic if the total costs exceed 225. Those costs are operating costs, capex, sustaining cost, G&A, and exploration. On the later the average industry cost is $20, with hit or miss results. Using 20 for deposit cost, a project would have to have cash costs below 135 to pencil. There are only a handful a decade meeting that criteria. And oh BTW, with exploration budgets slashed 70%, that handful expectation looks more than a bit high.