HardAssetsInvestor

Written by Julian Murdoch  |

May 08, 2008

All That Glitters ...

Details

Gold is trading near $1,000/ounce. Why aren't the miners celebrating?

• Cash costs and the price of ore
• Energy problems
• The "old field" syndrome

 

 

In case you've been in a cave without WiFi or Wall Street Journal delivery since the summer of 2005, gold has been on a tear for three years, and the last six months in particular. Yes, it has pulled back from flirting with the $1,000-per-ounce mark, but there is no denying that the last few years have been a lot of fun for gold watchers.

If you listen to the industry buzz, more signs point up than down for the near future. Let's take a quick look.

 

Gold 100 oz (GC, COMEX) Monthly Price Chart

 

The spot price for gold closed at $875/ounce on May 6, 2008. Gold futures on the same date for the May contract were running a little above that, with a dip into backwardation for the June contract. Contracts for July, August, October and December are sitting in contango.

 

NYMEX Futures 5/6/08 Session close
May 2008	881.4
June 2008	877.2
July 2008	879.3
Aug 2008	882.3
Oct 2008	885.8
Dec 2008	890.2

 

With that in mind, it should be a great time to be a miner, right? Well, maybe not as champagne-popping as you'd think.

You see, mining companies are affected by much more than just the price of gold. Rising energy costs, exploration, environmental laws, currency fluctuations, management decisions - they all end up reflected in a company's bottom line. So while gold has been rising astronomically, the cost of mining has been rising too. Have the mining companies been able to take advantage of the spike in gold prices? Or have all of the other factors eaten away at their profits?

Gold Producers Considered

The top three gold producers in the world are Newmont Mining Corp (NYSE: NEM), AngloGold Ashanti (NYSE: AU) and Barrick Gold Corporation (NYSE: ABX). These are all large, multimine, multiproduct, multicountry operations. Let's take a look at how they've been doing. We'll go alphabetically, because who you consider top dog is a source of constant speculation, data mining and mud wrestling.

 

 

 

 

 

 

 

All of these graphs look pretty similar on the outset - they all have the company's average received price of gold going up as gold's spot price goes up. But the interesting thing to note is that total cash costs for both AngloGold Ashanti and Barrick have risen steadily since 2005. Newmont Mining is the only one of the three that actually shows a decrease in total cash costs for the first quarter of 2008.