Interesting report on gold this week from ABN Amro and VM Group.
The Gold Mine Cost Report studies operating costs for 89 gold companies running 232 mines around the world. The most recent report shows that operating costs increased by 1.8% in Q2, as compared to Q1.
This is the lowest quarterly increase in opex since Q1 2009. Over the last year, operating costs have been growing quickly as prices for fuel, steel and labor increased on the back of the apparent global economic recovery.
That trend appears to be slowing. Many of the input commodities for gold miners have fallen in price over the last few months. The reason Q2 cost growth finally came in at a reasonable number.
This side of the profit equation too often gets forgotten when investors look at gold miners. Most of the attention is on the gold price. But when mining costs rise as quickly as the price (which has been happening the last year and a half), profits don't rise. And profits are the real driver of business success.
That's changing. With cost growth slowing down and the gold price remaining strong, profits should be growing for the gold miners. We'll see what the Q3 numbers look like.
This is one of the things that makes gold such an attractive investment in the current shaky economic environment.
Make no mistake, if we have another financial crisis, the gold price will fall. But as we experienced late in 2008, gold doesn't fall as much as everything else. Meaning that input costs drop significantly, and miners' profits grow. Even at $900 gold.
This is the same thing that happened in the 1930s. When gold mining companies were one of the few well-performing investments.
Something to consider for your portfolio.
By. Dave Forest of Notela Resources
Dave is Managing Geologist of the Pierce Points Daily E-Letter. More
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