CEO Kevin McArthur of GoldCorp appearing on CNBC's Closing Bell just said that he sees a "trainwreck" coming in terms of the future supply-side of gold!? You guys know I'm a gold bug, but c'mon...
During the decades long gold bear market that took gold down to $250, few investment dollars were being spent on discovering new mines and getting new mines operational. Recovering from that lull will take at least a decade because of the time needed to get new gold mines operational. So the bottom line is that gold production is going down despite the high price of gold...
And, bringing an American mine back online is almost impossible due to the regulation and license costs that are now required for a 'new' or 'renewed' mine. Yeah regulation!!! :)
It is normal for supply to go down as the price goes up. That is because they work the poorer grades of ore. It's not possible to work those grades at lower prices. They work the higher grades when prices are high so they can get enough money to keep going.
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It is normal for supply to go down as the price goes up. That is because they work the poorer grades of ore. It's not possible to work those grades at lower prices. They work the higher grades when prices are high so they can get enough money to keep going.
Good point...most of the mines currently in operation have had the easy gold sucked out of them because of the long bear market when the miners were forced to concentrate of extracting the lowest cost gold only. Which means both increasing costs for the miners and decreasing production.
quote:Originally posted by horgad Good point...most of the mines currently in operation have had the easy gold sucked out of them because of the long bear market when the miners were forced to concentrate of extracting the lowest cost gold only. Which means both increasing costs for the miners and decreasing production.
This is actually what I do for a living. Basically there are four basic strategies: 1. Look at old mines to see if the grade/tonnage is available to reopen. 2. Look at known deposits that were never worked, recalculate or re-drill to determine grade, tonnage, recovery% etc. 3. Look for "elephants in elephant country" by "stepping off" nearby existing mines or deposits to look for extensions. 4. Try to make a genuine "new" discovery in a place where either nobody has looked or did not look in the right way.
In any of the above cases the same problems exist though... it takes a lot of money and a long time to get from a geologist hitting a rock with a pick to having gold bars produced from the end of a smelter. There are hundreds of billions of tons of rock sitting in the ground grading three-tenths or four-tenths of a gram gold per ton. That is just too low to make it pay! You need seven tenths to really even want to think about it... and a gram to feel at all confident. Then there is tonnage and acceessibility... if you have to go underground the costs per ton go up, so the grade must go up too. You can have a fabulously rich deposit with 100 grams per ton ore... but if it is a tiny little half-inch wide vein you have to move so much waste-rock to get it that you lose money trying.
It's a very tricky game, and you're betting not on what gold is selling for NOW, but what it will be selling for in four or five or ten years when your mine is finally in production.
Gold Supply-Side
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Posted - 05/05/2008 : 14:37:05
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