Mining Cost Increases - Negatives and Positives

By: Ian Campbell | Fri, Jul 27, 2012
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Why Read: Because as a generality mining capital and operating costs are increasing significantly, and because those who say the equity markets are under-pricing gold (and other) mining stocks can be far to general in their prognostications. That said, there are always exceptions to generalities.

Commentary: I have a number of 10,000 foot observations in the current world economic and financial markets, those who invest in and trade in the mining and oil & gas sectors might want to think carefully about those observations. When doing so, remember the adage I repeat periodically in these Newsletters when referring to the financial markets - rising tides raise all boats, falling tides drop them all.

I believe it is important to observe mining cost increases from at least the following perspectives, some of which are clearly negative, and some of which over the longer term I think may be quite positive if one invests in or trades carefully researched and selected companies - and has the stomach for substantive share price volatility through their 'hold period'. My current thoughts are:

I plan to expand on these thoughts in subsequent Newsletters over the next weeks and months.

Context: In the end, company share value and hence price are forward looking. Anyone participating in the equity markets needs to carefully consider the possible or likely consequences of changes in capital and operating cost structures, country risk, country taxation structures, and expropriation risk - particularly in capital intensive operations, which includes both mining and oil & gas companies.

Topical Reference: Barrick Gold shifts focus to investor returns, from The Financial Post, Peter Koven, July 26, 2012 - reading time 3 minutes.

 


 

Ian Campbell

Author: Ian Campbell

Ian R. Campbell, FCA, FCBV
Economic Straight Talk

Through the Economic Straight Talk Newsletter Ian R. Campbell shares his perspective on the world economy, the financial markets, and natural resources. A recognized business valuation authority, he founded Toronto based Campbell Valuation Partners (1976), Stock Research Portal (2007) a source of resource companies market data and analytic tools, and Economic Straight Talk (2012). The CICBV* annually funds business valuation research in his name**. Contact him at icampbell@srddi.com.
* Canadian Institute of Chartered Business Valuators
** through The Ian R. Campbell Research Initiative

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