"With the gold price at $1 300/oz, the global gold industry is loss-making. He says that the industry has been remiss for many years for failing to report what it really costs miners to produce an ounce of gold, a pound of copper and a ton of coal. "We've got an industry that is actually going through cost escalations that are slowly driving it into the ground," he adds. Cost per ton rising 12% a year in the last five years means a doubling of costs every four years; simultaneously, yields are falling. Exploration budgets are rising and mining companies are spending more to find less. "Gold is becoming scarce and resources are becoming scarce," says Holland. Even though the speech as given a few months ago, the points apply even more today than they did back then. The gold miners have cut costs, but many of them have done it by "high-grading" their ore and sacrificing future production to produce low-cost ounces today".
"As with all commodity investments, as the price drops below the costs of production, miners keep up production simply to survive but even that at a point must end, and we gradually see them slow down production and conserve cash. We're heading that direction, and as exploration budgets are cut (investors need only look at third quarter company financials to see the drastic drops in exploration budgets) we're going to see less future gold production."
Buying gold has been a losing investment for the last two years, but the fundamentals of the investment remain the same and future supply is dropping drastically the longer the price remains at levels below the cost of production".
"Investors should remember that being a contrarian means buying an asset with strong fundamentals that nobody likes - in the last two years gold has become that investment.
Investors need to be very careful which gold miners they buy though, because as Mr. Holland makes clear, many miners will struggle to make a profit at current gold prices and are not as sure as the gold price. Look to the miners with low costs of production and strong balance sheets such as Goldcorp (GG), Agnico-Eagle (AEM), Randgold (GOLD), or even some of the explorers and silver miners such as First Majestic (AG)".
Source: Seeking Alpha
"As with all commodity investments, as the price drops below the costs of production, miners keep up production simply to survive but even that at a point must end, and we gradually see them slow down production and conserve cash. We're heading that direction, and as exploration budgets are cut (investors need only look at third quarter company financials to see the drastic drops in exploration budgets) we're going to see less future gold production."
Buying gold has been a losing investment for the last two years, but the fundamentals of the investment remain the same and future supply is dropping drastically the longer the price remains at levels below the cost of production".
"Investors should remember that being a contrarian means buying an asset with strong fundamentals that nobody likes - in the last two years gold has become that investment.
Investors need to be very careful which gold miners they buy though, because as Mr. Holland makes clear, many miners will struggle to make a profit at current gold prices and are not as sure as the gold price. Look to the miners with low costs of production and strong balance sheets such as Goldcorp (GG), Agnico-Eagle (AEM), Randgold (GOLD), or even some of the explorers and silver miners such as First Majestic (AG)".
Source: Seeking Alpha
