Gold Breaks Out

Gold has crashed through the $US1300 to $1360 an ounce and is forecast to hit the $US1500 – $US2,000 an ounce by end of year.  There is also a possibility that if the tensions increase in the middle east that $US2,000 is on the probability list PRIOR TO THE END OF YEAR.  With the $A hovering around the $US0.70 cents it looks that anyone who has a Gold Resource is going to become fair game.  Australian Companies in particular are very fond of making bids for undervalued companies that have Gold resources. In 2011 Gold prices surged to $US1923.00 ounce before retreating. There does appear to be a big appetite for Gold at the moment. The market is penciling in $US2,000 and beyond.   

Cost to produce Gold

With surging Gold prices the cost of mining and processing is also rising because of the greed factor. Suppliers of the equipment, explosives, services and costs of the workforce particularly in Australia are all jumping on the bandwagon wanting ever increasing hikes in wages and item costs. Evening the drilling has increased 3 fold since 2007 with the industry becoming somewhat of a racket. But whilst the Directors of Companies who don’t really know what the costs really are they industry will continue to hit up the mining companies with increases for their services. 

With surging Gold prices the cost of mining and processing is also rising because of the greed factor. Suppliers of the equipment, explosives, services and costs of the workforce particularly in Australia are all jumping on the bandwagon wanting ever increasing hikes in wages and item costs. Evening the drilling has increased 3 fold since 2007 with the industry becoming somewhat of a racket. But whilst the Directors of Companies who don’t really know what the costs really are they industry will continue to hit up the mining companies with increases for their services. 

Cost of Exploration

The the burgeoning costs associated with exploration, like drilling costs, assaying, transport and costs and services of geologists, accommodation, air fares and other associated costs it appears that the pretty standard costs for determining a mineable resource is starting to head around $A250 for an ounce of Gold.  So folks if a junior or non producer has a resource of 1 million ounces and a market cap of $80m they are fair game and makes sense to take them out sooner rather than later. The more the Gold price rises the more the cost to find it seems to follow.   Seems the market hasn’t taken a lot of fair value into account when investing in these low market cap high resource stocks.  One group that got it right was Northern Star Resources (NST) who started to accumulate a lot of Barracks old mines and making bids for companies like Tribune and Rand 49% of the East Kundana JV that it did not own. NST paid $150m for that 49% they did not hold. Excessive, some said, well as it turned out the deal never got done, but just goes to show companies will pay plenty for Gold in the ground.

Goldman

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