From Mining Weekly:
SocGen says miners’ output costs have dropped more than expected
Miners’ output costs have dropped more than industry consensus due to lower energy prices and weak emerging market currencies, a report by Societe Generale showed, suggesting metals prices have further to fall before miners are forced out of business.
I laughed. Whole thing here.
This morning comes this piece in Peru’s biz daily Gestión that interviews The Mining Expert (in this case José Miguel Morales, ex-prez of Peru’s chamber of mining, the SNMPE) who says that gold miners in Peru are in good shape to confront $1,000/oz gold if necessary because (he says) energy costs are low and the strong dollar also helps costs. It also quotes Fitch Ratings as saying that the PM mining sector is prepared to support gold prices under $1k/oz.
How mining companies will react to the new new normal
I’ve been sent three “stress testing the gold miners” fundamentals analyses published by brokerages this week (the best was from RBC and for what it’s worth, Tahoe Resources and Semafo came out best) and I’ve read at least a dozen “gold miners in trouble at $1,100/oz gold” articles that sometimes take a look, other times are akin to the guy with the “End Of The World” sandwich board on the city street corner. And when those anal ysts have a theme, they’re sure to thrash it to death. It’s called justifying paychecks. However, one thing I can guarantee in the face of this very important and wholly objective scientific numbercrunching is the reaction from the miners. We’re about to hear from a whole bunch of mining executives working at the larger and the medium-scale producers who are going to tell us that in fact things have changed and they’re perfectly profitable at U$1,100/oz gold these days, plus how they’re “stress tested” down to a thousand and all those suits in cubicles are being overly pessimistic.
What then happens, given a level gold playing field, is that the lapdogs anal ysts writing their pseudocritiques fall into line and start saying nice things about the miners (recall they care more about the people running these mining companies than their brokerage clients), shares recover at least some of the recent losses as bargain hunters move in to snap up the value. That re-rate remains in place right up until they discover that the mining bosses were talking about operating costs and not total costs, or total costs and not all-in sustaining costs, or All-In costs and not all-in sustaining costs. Whichever way it is, the new buyers discover one or two quarters down the line that the money made at the mine is having great difficulty in reaching the bottom line of the P+L. All very strange and perplexing, I’m sure. Unless of course gold recovers in the meantime and then we’re all saved. Cynical opening riff complete, I’ll now turn the irony spigot towards other targets.