NEVER BEFORE SEEN CHARTS: Gold Mining Industry’s Costs Are Higher Than Market Realizes

New information suggests that the cost to produce gold is much higher than what the market realizes.  As the cost to produce gold has skyrocketed over the past two decades, the mining industry has hidden certain costs by placing them in their capital expenditures.  This has lowered their “Cost of Sales” figures but has significantly increased their capital expenditures.

Furthermore, this massive cost shift has forced the gold mining industry to tackle these big problems, with big solutions.  However, these big solutions come at a big cost.  For example, as the average gold ore grade has fallen substantially over the past 20 years, the gold mining industry now has to move a great deal more ore to produce the same or even less gold.

In order to move a great deal more ore, the mining industry has to spend a lot more on trucks, tires, materials, energy, and labor.  In my newest video below, I show in detail the BIG CHANGES taking place in the top four gold miners in the world:

I believe several of the charts in this video has never been seen before by precious metals investors and alternative media community.  To understand why the cost to produce gold is higher than what the industry has led us to believe, we have to focus on the massive amount of capital invested by the gold mining industry.

Unfortunately, the investment of billions of additional dollars in capital expenditures by the top gold miners has not kept production from falling.  Actually, the top four gold mining companies’ production peaked more than ten years ago and continued to trend lower.

One of the charts in the video shows the enormous increase in the amount of ore processed at Barrick’s Nevada Gold Mining Operations.  In just 20 years, Barrick’s Goldstrike and Cortez Mines now how to process four times, 24 million tons of ore, to produce the same amount of gold then they did in 1998:

To understand the tremendous increase in capital expenditures and costs to process four times more ore to produce the same amount of gold at Barrick’s top mines, I highly recommend watching the video above.  Moreover, I provide additional cost analysis on the top four gold miners as a group.

The gold mining industry is plagued by rising costs in all areas.  While some of these costs have decreased over the past several years due to a  falling oil price, these costs will likely increase going forward as ore grades continue to decline.  Furthermore, as global oil production begins to experience “Seneca Cliff” like declines in the future, gold production will be negatively impacted, even with much higher gold prices.

Precious metals investors need to understand the changing “Energy Dynamic” and its impact on the entire economy and financial system.  While the gold and silver prices continue to trend lower, this should not be seen as a WEAKNESS, but rather as a STRENGTH.

Soon, the days of buying gold and silver at bargain basement prices will be gone forever.

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16 Comments on "NEVER BEFORE SEEN CHARTS: Gold Mining Industry’s Costs Are Higher Than Market Realizes"

  1. What goes for oil, goes for gold.

    • It’s obvious you have no clue to investing.

    • Well, it would be interesting to see Steve’s analysis on Gold returned on (all costs in) gold invested for the gold mining sector. The costs of debt, interests, and energy etc. in gold would be an interesting one to look at. Do gold mines really produce that much gold (an other metals) in terms of gold invested ?

  2. Thanks Steve, another well thought out and informative video. I would be interested in seeing a similar analysis for silver. Considering there is probably as much or more gold in physical bars and bullion than silver, the stored energy in existing silver coins and bars may give gold a run for the money.

  3. Some mining companies I’ve read issue new shares of stock to finance a project and dilute the value of existing stock. They burn through investors equity just to keep the mines going. New investors are needed to replace those that leave and the cycle goes on.

  4. Why some mining companys?Most of the canadian miners(explorer,junors,developer).All world master in dillution.

  5. Billy lone bear | July 18, 2018 at 9:45 pm | Reply

    Well put together Steve. Excellent analysis. As a note cost of production for platinum is reported as roughly $1000/ounce and is trading at roughly $820. Would love to see an analysis on silver cost of production (primary mining only).

  6. Remember the math teacher who said to his pupil very nice your math calculation.Looks very good.
    Only the result is wrong.

  7. Great Article, thanks Steve.

    Though just to clarify, Capitalized Expenses *DO* eventually hit the income statement down the road in the form of amortization/depreciation or impairment charges. So it is not as if they go on the balance sheet and stay there forever. The rate of amortization/depreciation schedule depends on the asset class, industry norms, and GAAP guidance (but there is always subjectivity and management bias involved).

    For this reason, you should not discount the Income Statement entirely. The idea behind capitalizing costs on the balance sheet (and not charging them right away to P&L when cash is exchanged) is because these costs will help generate future earnings. So the accounting profession has accruals and deferrals to match capital expenses in the period in which they help generate income (future periods). The idea behind this matching concept is that it provides better predictor of future earnings and cash flow and more useful to investors, than by NOT using accruals and deferrals to match — this would mean just expensing when cash changes hands.

    If you believe that the capitalization of costs and the associated deprecation/amortization or impairment schedules of these companies DO NOT reflect economic reality — you should say that and explain why — Ex. they are incorrectly capitalizing costs that should be expensed, or doesn’t take into account EROI, or too subjective, or whatever… RATHER THAN just discounting the accounting profession entirely and saying these accruals and deferrals are not real, just look at cash flow statement.

    Lastly, thank you for actually talking about gold. That is how I know you are REAL. I’m trying to figure out why the alt media more often than not wants the sheeple to buy silver? I have a theory that the alt media is largely bought out on this topic because gold is in such limited supply and they don’t want the sheeple purchasing it… they generate buzz around silver, not gold.

    • Abe F,

      Yes, it is true that Depreciation, Depletion, and Amortization (D,D & A) are the other side of Capital Expenditures. However, Barrick has spent nearly $10 billion more on Capital Expenditures over the past 20 years than what they listed as D,D & A. Of course, some of these capital expenditures will become D,D, & A in later years, but we can clearly see that CAPEX spending is normally much larger than D, D & A on an ongoing basis.

      Furthermore, this doesn’t include other items such as Share Dilution. Barrick’s outstanding shares have surged from 160 million in 1998 to 534 million currently. This is more than a three-times increase in outstanding shares. Over the 20 year period, Barrick as acquired $4.3 billion in funds from issuing new shares while buying back $830 million. Thus, Barrick used an additional $3.5 billion to fund business.

      That being said, the Primary Gold & Silver Mining Companies will be few of the best stocks to own when the most stocks turn into SHYTE.

      I just wanted to show that the cost to produce gold is higher than what the market realizes.


  8. Last year (2017) we have 8.1 times more silver mined than gold but 10.9 times more industrial use for silver than gold. Overall silver demand exceeds supply as we can see by comparing 1017.6 demand against 991.6 supply in 2017. What do you think the future silver price will have to be because industrial demand for silver (forget the long past and silver/gold ratio) for today’s silver uses constantly increases and depletes finite reserves? Obviously the silver price will have to explode. Reading or listening to talk about imaginary mines filled with gold and silver is a joke… let us see proof. It takes a supernova (exploding star or two stars colliding) which is a rare occurrence to create precious metals by fusion so the elements are obviously rare. Use your head and look at today’s processes and you will see volcanoes do not contain concentrations of anything since everything is mixed. Obviously felsic is new and mafic is old type of lava flows so mafic will give us a hint what exists below the crust and felsic will give us a hint what exists on the crust (you need to take many large samples of all vocanoes all over the world to get a good average). It takes water which is only found on or in the crust to concentrate or create compounds and then concentrate the compounds or minerals by a centrifuge type action which is from rivers, oceans, geysers etc. So water with enough force and time is needed to concentrate elements and compounds (minerals) that are profitable to mine. This is obviously not everywhere in the crust but in many places since the Earth is old and has weathered throughout time and also in recent human times the number of profitable areas diminish with time as production reduces profitable mining sites. It takes energy to mine and the energy is also finite and will increase in cost (as we know thanks to Steve EROI is the important way of determining cost) which will only increase the cost of mining and purifying precious metals. So with all these factors and increasing industrial demand (I call true demand not speculative demand such as buying and holding) we will see which element will be most profitable because of finite supply.

  9. Steve:
    While you have a beautiful voice some of us still prefer reading.

  10. Still waiting for that gold price to rise and make us all rich.

    Screw this. I’m getting into treasuries, peer to peer lending, and real estate. At least you get an income.

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