The real costs to mine gold and silver
roadrunner
Posts: 28,303 ✭✭✭✭✭
It ain't as easy it looks
Cash costs are only one part of the formula. The first half of the article gives some good insights as to the state of the current PM mining market. It's been a while since I've seen an easy to read article that highlights the right issues. It's probably great news for bullion as the underlying metal is better positioned to go up in price if the supply starts to shrink or stagnates and money printing/debt continues to rise.
I don't necessarily agree with the author's conclusion that a few well selected gold and silver juniors will reward one handsomely. The issue is really being able to single such a junior out and then hang on through the trials and tribulations of discovery - permitting - funding - mine building. Easier said than done. The problem with that is that even the best juniors with the best management can run out of money. And the typical junior mining stock price often sees a huge tumble after the deposit has been quantified and the costs of building a mine start to weigh them down. Sinclair has oftened mentioned that many of these explorer/juniors sell their souls to get funding even if it means bank favorable derivatives buried/hidden into the loan contract that will suck the profits out of the mine. Quite a few juniors soared into the 2006-2011 period on nice deposits, and then tanked when it came time to try and get them out of the ground. The majors seem to be waiting until some of these guys are close to going under before considering taking them over. It's as if they are playing a game of chicken with the stock price when looking at companies like XRA, THM, GPL, JAG, NAK, NG, GBG, etc. Richmont (RIC) would have been on that list too up until this week when they decided to close one of their mines and cease exploration on a key property. Never a dull moment though in the world of PM. The seniors might be waiting until they can get the juniors for next to nothing before proceeding. While this article doesn't address silver mining costs one can probably apply a simple ratio to find it. Low $20's is probably a fair starting point.
Cash costs are only one part of the formula. The first half of the article gives some good insights as to the state of the current PM mining market. It's been a while since I've seen an easy to read article that highlights the right issues. It's probably great news for bullion as the underlying metal is better positioned to go up in price if the supply starts to shrink or stagnates and money printing/debt continues to rise.
I don't necessarily agree with the author's conclusion that a few well selected gold and silver juniors will reward one handsomely. The issue is really being able to single such a junior out and then hang on through the trials and tribulations of discovery - permitting - funding - mine building. Easier said than done. The problem with that is that even the best juniors with the best management can run out of money. And the typical junior mining stock price often sees a huge tumble after the deposit has been quantified and the costs of building a mine start to weigh them down. Sinclair has oftened mentioned that many of these explorer/juniors sell their souls to get funding even if it means bank favorable derivatives buried/hidden into the loan contract that will suck the profits out of the mine. Quite a few juniors soared into the 2006-2011 period on nice deposits, and then tanked when it came time to try and get them out of the ground. The majors seem to be waiting until some of these guys are close to going under before considering taking them over. It's as if they are playing a game of chicken with the stock price when looking at companies like XRA, THM, GPL, JAG, NAK, NG, GBG, etc. Richmont (RIC) would have been on that list too up until this week when they decided to close one of their mines and cease exploration on a key property. Never a dull moment though in the world of PM. The seniors might be waiting until they can get the juniors for next to nothing before proceeding. While this article doesn't address silver mining costs one can probably apply a simple ratio to find it. Low $20's is probably a fair starting point.
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<< <i>The majors seem to be waiting until some of these guys are close to going under before considering taking them over. It's as if they are playing a game of chicken with the stock price when looking at companies like XRA, THM, GPL, JAG, NAK, NG, GBG, etc. Richmont (RIC) would have been on that list too up until this week when they decided to close one of their mines and cease exploration on a key property. Never a dull moment though in the world of PM. The seniors might be waiting until they can get the juniors for next to nothing before proceeding. >>
The above is very true, IMO.
I take this to mean one really needs to know this segment to invest any $$ (ie speculating) in the juniors?
Otherwise, you're much better off in GDXJ, GDX, or NUGT. Last I checked GDXJ had over 70 holdings with none >5%. Even with a few clunkers in GDXJ,
the majority of them are probably going to do well. Out of hundreds of juniors (or thousands of juniors/explorers), they picked what they feel are the best 70-80 miners.
GDX is squarely on the producing seniors which means lots of known mineable reserves. At the present time I like the seniors better, and Nugt in particular to help make
up for the lack of leverage among the largest seniors which make up >30% of the ETF. A 2X GDX would probably be easier to manage than 3X GDX (ie Nugt). A lot of the
hedge funds are still in the long gold & silver...short the miners trade which has worked very well for 2-3 years.
I knew it would happen.