Newmont’s new CEO Gary Goldberg knows what’s wrong with the gold sector.
He summed up the difficulties this week to the Denver Post. In just 10 words:
“[T]he costs to produce [an] ounce are up by $900.”
Goldberg was referring to the last 12 years. A period where the gold price has risen by $1,000 per ounce.
That’s a stunning revelation. From a person on the “front lines” of the industry. Admitting that profit margins in the business have barely improved. Despite the much-lauded run in the gold price.
This is why gold companies are performing so poorly. Gold bulls were right that money creation and inflation would drive the gold price higher. But most didn’t factor in that inflation also drives mining costs higher. Fuel, labor and steel are all going at a premium in today’s economy.
That’s why gold mines like Pascua Lama have seen their construction costs rise from $3 billion to $8.5 billion. Never mind the operating costs. No one is making money in this environment.
The real leg-up for gold miners won’t come until costs go down, relative to the gold price.
The next phase in the gold bull market may not be a big jump in gold like many analysts think. But rather a significant fall in everything else.
Here’s to cost control,