Wednesday, November 20, 2013

As Gold Prices Retrace to the June Lows Mine Output to Reach Record High (Junior Miner ETF Approaches All-time Record Low) GDX; GDXJ

This is what Izzy was warning against in last week's Alphaville post "The gold producer wild card".
Which brought out the dimwits:
Scipio78 | November 14 1:55pm | Permalink
This post is nonsense. The real "all-in cost" of mining gold is about $1100oz for most producers. On new mines (usually in Africa or Latam with little infrastructure and greedy politicians) it can be about $1500-1600oz. For many gold miners current spot prices are about breakeven, if spot were to go below $1k, they would not hedge .... they would close down!! 
It isn't the all-in cost that matters here, companies will forgo capex, environmental remediation and a half-dozen other components of "all-in".
What matters is cash costs. What do they have to pay the miners? What is this month's electrical bill? etc.

For 2012 Gold Fields Mineral Service estimated worldwide cash costs at $740/oz and all-in costs at $1150/oz. so in our link to the wild card post I tried to put the situation into technical terms: producers quit with the "hope it will come back" strategy and have the belated realization that "Holy crap, if we don't lock in now we'll be selling below cash cost"...
Today we read in Zaire's " Business Report" (Reuters):

Gold mine output set to reach record
Output from the world's gold mines is set to hit record highs this year, disappointing bulls who are impatiently waiting for production cuts following this year's 24 percent plunge in prices.

Some gold miners have felt the squeeze of lower prices this year, and a number, including Canada's Kinross and Russia's Polymetal, suspended marginal mines and projects after a dramatic first-half price drop.
But as prices fall, others are actually increasing output to maintain revenue and profit levels. In some cases, they are targeting higher grade ore to keep marginal mines operating and generating cash, at the expense of future production. 

Furthermore, several large projects put into motion during gold's 12-year rally, which took it as high as $1,920 an ounce in 2011, are coming to fruition. 

“Our expectation is that we're going to see a fresh record high in gold mining output this year,” GFMS analyst William Tankard said. 

“What we're seeing is an ongoing response not to the slide in prices, but the decade-long stretch of fairly heavy capital investment into the mining industry that preceded it.” 

The world's top three gold miners - Barrick Gold, Newmont Mining and AngloGold Ashanti - all reported higher production in the most recent quarter....MORE
Some of the Nevada USA mines have cash costs of under $500 including Barrick's properties.
You've heard of Barrick right? World's largest miner, able to withstand price wars that will sink the higher price guys? Yeah, that Barrick.
We're going lower. 

The Market Vectors Junior Gold Miners ETF just hit a new life of the ETF low oops, I hallucinated a price lower than the actual print, we're still above the June 26 $8.21x4 reverse split figure, while the GDX is back to 2008 prices.
Front futures $1263.20 down $10.30. June 28, 2013 $1179.40.