The thing I'm getting from the dip in Gold prices

[Glass]

I've seen a few articles this week about Gold producers scalling back or shelving some projects because it's just not profitable at these prices. I thought that was interesting.

Back in 2010 I bought into some Lihir mining down here in Oz. The reasons were, no hedge book, lowish production cost at about USD $550 per ounce and no hedge book so everything going forward would have been extremely profitable.

Newcrest did a buy out of Lihir a couple years back and did so on the basis that Lihir had good production costs and no hedge book.

The hedge book was critical because Newcrest has a massive hedge book overhang. So big infact that I think their reserves numbers could be under pressure. They may not have enough reserves to meet their hedge obligations.

Anyway when Nnewcrest bought them I got an share exchange. No cash option from memory or maybe I missed the deadline. I sold these as soon as the price recovered to pre-buyout levels. Why? Because of Newcrests hedge book and the unlikely possibility of getting dividends going forward.

The point is, there are a fair few projects getting shelved at the moment and the reasons being stated are the production costs. Production costs are now running at about $1220 per ounce. I don't know if that is AUD or USD but I don't think it matters.

Production costs have rised from $550 per ounce maybe 3 years ago to ~ $1200 today. That is a big spike IMO.


The gold price has recovered to be $US1425 per ounce, but is still low enough to threaten some mines, including some owned by Newcrest.

The Hidden Valley mine in Papua New Guinea, which Newcrest owns 50 per cent of in a joint venture with Harmony Gold, is one such mine, given it produced at a cost of $1790 per ounce in the March quarter.
When translated into US dollar terms, such costs would have been uneconomic for most of history, apart from a brief period in August 2011 when gold breached $US1900 per ounce.


Read more: http://www.theage.com.au/business/newcrest-mines-under-review-20130423-2ibfl.html#ixzz2RLibPlFk


Link (http://www.theage.com.au/business/newcrest-mines-under-review-20130423-2ibfl.html)

Thats just one local miner report. There are others.

What does this mean? A shortage of supply going forward for sure. Price impact? Hopefully upwards.

[Ponce]

Production $1,220?.........why hell, how much are those miners being paid?.............how about silver?

V

[mamboni]

Long term, gold production has been all but destroyed by the bankster paper price games. A typical mine take 5 years or more to go from proving up to actual mining of real gold. I think we'll see gold production go into slow decline over the next 5-10 years. That is bullish for gold price, long term. But short term gold price is going to be determined by how the ongoing run on the bullion banks and private gold reserves culminates. No one is focussed on the miners now - too remote of a problem. In a few years, after the dust settles from the gold wars, I predict that all eyes will be on the miners.

[Hypertiger]

from 1944 to 2008...US consumers requested commercial banks to inflate the money supply by 7.9% per year on average.

Then they stopped...and it's been the FED and Government proping up the top banks to keep them from collapsing...in teh past 5 years...10 Trillion dollars that should have been produce by the USA...

there has been virtually no inflation in the money supply...

US government spending has been flat since 2008 and Ben is not printing like mad.

The USA has been deflating for teh past 5 years...and the lack of inflation inputs are beginning to show up in the Gold prices due to their being more derivatives in relation to demand.

[mamboni]

from 1944 to 2008...US consumers requested commercial banks to inflate the money supply by 7.9% per year on average.

Then they stopped...and it's been the FED and Government proping up the top banks to keep them from collapsing...in teh past 5 years...10 Trillion dollars that should have been produce by the USA...

there has been virtually no inflation in the money supply...

US government spending has been flat since 2008 and Ben is not printing like mad.

The USA has been deflating for teh past 5 years...and the lack of inflation inputs are beginning to show up in the Gold prices due to their being more derivatives in relation to demand.

This will all be rectified with the coming dollar devaluation versus gold.

[croc]

hiya glass'

I worked at hidden valley, what a turd

[Hatha Sunahara]

It won't take very long for the gold prices to recover. Also, it won't take very long for COMEX to self destruct. And if you want to buy physical gold, good luck getting it at the COMEX price. Nothing has happened to the demand for physical gold other than it has gone up. The dip in the gold price is part of a much larger pump and dump scheme, and should have no effect on long term plans of the miners. Fear has some devastating effects on faith. Keep the faith. The laws of nature have not changed.


Hatha

[gunDriller]

the US gov., state gov's., & some local gov's. all have a huge bias against small scale gold mining.

they do it similar to how they persecute small scale farming: paper work requirements are often the same for a small scale operation as for a large one.

since a small scale operation - whether it be food or gold - often consists of a sole entrepreneur or a couple, who also have other job & family responsibilities that eat up their time, those paper work requirements often make it impossible to farm or mine legally.

the paperwork requirements then have the effect of stopping the small scale farmer & miner (and some folks do both farming AND mining), or of forcing them to just grow enough for themselves, or of forcing them "underground".


it's all about control.

[Glass]

Production $1,220?.........why hell, how much are those miners being paid?.............how about silver?

V

Ponce, I have to say I don't know anything about the production costs of silver down here. And yes at $1220 for the Au I did a double take. A huge number. I can't see how it could have gone up that much. I know we are in a hole digging bubble down here. Booming mining sector in the north west of the country with people being paid $150K a year base $ on the mines. The money is always good to get the people working out there but I don't think they have gone up much in the past couple years.

I'm wondering what makes up that cost of production. Does anyone have any info on production costs in other countries? In the US, Africa or even South America.

As for silver I don't even know how much silver they dig up and where in Australia. I figured it going to be a byproduct to something else they are digging up. I might spend a bit of time educating myself on that one.

hey croc. good to hear/see you out there.

[mamboni]

Ponce, I have to say I don't know anything about the production costs of silver down here. And yes at $1220 for the Au I did a double take. A huge number. I can't see how it could have gone up that much. I know we are in a hole digging bubble down here. Booming mining sector in the north west of the country with people being paid $150K a year base $ on the mines. The money is always good to get the people working out there but I don't think they have gone up much in the past couple years.

I'm wondering what makes up that cost of production. Does anyone have any info on production costs in other countries? In the US, Africa or even South America.

As for silver I don't even know how much silver they dig up and where in Australia. I figured it going to be a byproduct to something else they are digging up. I might spend a bit of time educating myself on that one.

hey croc. good to hear/see you out there.

It costs that much becuase they are down to mining crap ore, as in nil ore, as in a few grams per ton. They have to scoop up tens of thousands of pounds of rock, crush it, throw it across the side of an incline and let cyanide solution drip over it for years leeching out the little bit of gold in the rock. Then the cyanide solution is collected and the gold precipitated out. We won't mention the millions of gallons of water used, hundreds of gallons of diesel burned and thousands of acres of land forever poisoned with cyanide and heavy metals. Holy smokes, if aliens are looking down on this process they must think we are a hairless monkey race of gold junkies, turninig over heaven and earth just to snort a little golden powder.

[Twisted Titan]

I never thought about it like that Master Mei

But that makes a sh!t load of sense.


I gonna reaserch that angle more