The Four-Year Gold Curse

Very interesting comments this month from one of the gold industry's biggest players.

Gold Fields CEO Nick Holland was quoted in South African newspapers talking about problems faced by the precious metals sector. Primarily costs.

It's always interesting hearing from professionals on the "front line" of the business. And Holland's comments were particularly surprising and revealing.

He went on record saying that both the South African gold and platinum sectors are "under water" at current prices. Not making profits. Forcing the shut-down of mines.

The really interesting part was the pace of cost inflation seen by the CEO. Holland said that costs for the South African precious metals sector are doubling every four years.

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That's an incredible rate. One that certainly isn't sustainable.

The end game is that either mines will continue to close. Or costs must be contained.

Currently there are no signs of the latter. Labour is one of the biggest costs for South African miners. And increasingly militant labour unions in that country are cutting no slack for mining companies over wages.

This suggests major production dislocations could be ahead. This is big news for the global gold sector. And a potentially game-changing development for the platinum industry, where South Africa produces some 70% of global supply.

This is just one more confirmation that costs are the biggest killer for precious metals miners today (and not just in South Africa). If you're looking at projects or investments in this sector you need to be asking: what is going to make this operation affordable?

If there isn't an obvious answer, it might be a tough road ahead.

Here's to the next four years,

By. Dave Forest