By SD Contributor SRSrocco:
A recent article by Paul Van Eeden claimed the fair price of gold to be $800-$900 an ounce. If we look at the table I put together below, we can see that when we factor in ALL COSTS, in reality, the break-even price of mining gold is now above $1,300:
Here we can see that if we take the total net income of the top 5 gold miners Q3 2012, we get $1.9 billion or 39% less than the same quarter in 2011. If we take that net income and divide it by the total amount of gold produced by the group we get $348.65 net income profit per ounce.
Before I get any hate mail… I realize this is a simple way to get that calculation.. but it is at least a much better metric than the industry’s CASH COSTS. If we take the average price of gold currently, we can see that break-even is somewhere at $1,350 when we add in everything.
So, for Paul Van Eeden to state that the fair price of gold is in excess of $500 less than break-even, the top gold miners proves again that he is not only FOS, but did not go to the ROOT of the problem. I highly doubt the market would ever value gold at $800-$900 an ounce knowing that break even is now $1,350.
The biggest problem I see going forward is declining liquid energy supplies on the global market. Hardly no one (especially in the mining industry) is looking at this at all. That is why I believe most of them will get a rude awakening when they fail to realize their mining stock that has mines with 30 year mine lifespan may turn out to be a terrible investment in the future.
However, this makes owning physical metal even better….