Did anyone see Larry Kudlow last night ?

edmundfitzgerald

He had this old guy on who he called one of the most respected in the gold business.
Correct me if I'm wrong, but this old gent said it costs $500.00 to mine one ounce of gold

sumrtym

Seriously doubt that considering years ago I know the cost of mining silver complete through refining was less than $3 per ounce. I would expect gold to not be that much more expensive to mine / refine percentage-wise.

tetradrachm

It sounds like a reasonable number to me. Silver is a byproduct of mining for other metals so it may be less expensive as a percentage of its spot price. Freeport-McMoran, for example, has one of the best gold mines in the world and it costs them over $400/ounce. Like with oil, the low-hanging fruit has been picked and miners are now having to go after the stuff that is harder to get or in politically risky places.

Justacommeman

I believe that the average cost of mining gold was estimated at around $480 an ounce in 2009. The $500 number seems reasonable to me. MJ

mhammerman

$500 is what I recall as well, but those are mid year '09...today, it could certainly be more and that may be a part of what we are seeing in the prices. It could be that the 3rd/4th qtr '09 ore has all been processed and they are digging now at higher expenses than before and just passing that along. I say that because though gold fix/spot has been rising, costs have been going up steadily as well.

In looking at the Freeport McMoran quarterly report from May '10, they cite an average gold price of $1109/oz and also note that "continued investment demand and potential weakness in the USD" as the main driver of the higher prices. They also note that China is sucking up all the copper inventory from the mines and we know that copper and gold and silver are all mined together and separated later so I guess if you read between the lines that the rise in gold prices is also because of competition w/China for ore.

I could not find where anyone breaks out the mining cost/oz of just gold but I did see the $500 number last year. Freeport McMoran quarter report from May '10

johnny9434

thats what i heard. its not cheap thats for sure. it was interesting that he said it wouldnt be any good to see 2 or 3 thousand $ for an ounce of gold. it wont last

Buffalode

This is thru just 2009 but gives some info:

VM Group Report

roadrunner

$500 is very close to what a number of the miners were hitting in their 1st QTR 2010 earnings reports. The range I was seeing was from $420-$725 with upper $400's and lower $500's being typical. So the old gent was right.

The cost per ounce was often seen in the $300's just a couple of years ago before oil took off. Mining costs have been steadily rising the past 18 months along with oil, electricity, supplies, labor (ie strikes), etc. Even the price of gold has risen $300/oz. from a year ago, many miners are currently showing small improvements (ie gains < price of gold increase) or losses when compared to 1st QTR 2009.

The $500 is not the "all-in" price however as it does not include depreciation, amoritization, interest and taxes (ITDA). You can tack on another $100-$200 or more per ounce to get an "all-in" price on true total mining costs. So $600-$750 would be typical numbers for total per ounce mining costs. And what profit that is generated by mined production can be easily wiped out by currency fluctuations and hedges (ie derivatives). The majority of miners are far from making money hand over fist. One good strike, a mine nationalization, or operating/environmental permit being pulled can turn any mining operation sour for many months.

South African gold mine production has been on the decline since the 1970's. They are often digging down thousands of feet to try and find gold. Toss in a severe infrastructure problem and lack of reliable electricity and mining costs can soar.

roadrunner