Big money is being raised in the gold sector, and deals are getting done as gold approaches its old record high. Rusoro Mining (RML-TSX) announces a large overnight raise and we note there's not even a warrant attached, suggesting this company has solid pricing power. We go to Gord Zelko, publisher of www.mineralstox.com, for his timely work. Operating costs for gold mines around the world have been relentlessly rising, says, but bucking that trend is Rusoro Mining. Their latest (unaudited) production and cost numbers now show them producing gold for under the magic $400/oz mark. Using some charts and analysis, Zelko shows us who the low cost producers really are.
One of the biggest stories of the gold mining sector over the last five years has been the relentless rise in production costs. The price of oil, steel, and other commodities has gone up as much or more in percentage terms as the price of gold.
However, over the last few months we have heard many industry analysts and newsletter writers speak to how they expect costs for gold producers to DROP now the global recession has hit.
One of the first companies to really show that trend is Rusoro Mining (RML-TSX; CAD$0.66). They are now one of the lowest cost producers in the junior and intermediate mining space, and have reduced cash costs by well over 50%.
Surprisingly, they now compare favourably with the best of their peer group. Very few mid-tier or junior gold companies get under $400 per ounce now:
I say it’s surprising because most investors can’t see or hear anything good that comes out of Venezuela, due to the shrill speeches of President Hugo Chavez. The reality is however, it hosts one of the largest goldfields in the world. And as Rusoro is showing, as the sole private miner in the country, these goldfields can be very profitable when managed properly.
These figures were taken from Canaccord Capital’s Precious Metals Weekly of February 10, 2009, and are their projected 2009 cash costs per ounce. Rusoro’s figure is from their January production, which they issued in a press release on February 23, 2009. They estimate their 2009 operating cash costs to be in a wide range between $310 - $375/oz. We have reproduced the cash cost production charts from that release below. Rusoro does receive 10% less than world price for their gold.
Costs came down as new labour agreements created a more productive working environment, and because a large capital infusion gave Rusoro enough money to purchase all the proper equipment. Also, production is up 80% over two years, so they are able to amortize similar costs over a much larger amount of ounces.
Gold’s push through $1000 has been making the headlines this last week. Many gold investors and traders are betting on a correction before adding to or reestablishing long positions, and while the general public may be taking note, they don't really know what to make of it.
The Dow closed decisively below its November 20 low on Friday with an incredible spike in the NYSE volume. Many investors may have thought they were buying at the old support level, but the bears gave them all the stock they wanted. Gold closed near its high of the day with very little profit taking.
Bull markets are always merciless; they don't like to give you an easy second chance to join in. Innate contrarians are afraid gold is getting too much publicity now. Others think gold is "too expensive." But this hasn't halted the rush to gold. Given gold’s market leading performance, and the poor performance of just about everything else, we may be at the stage where funds are buying gold – if only to show they’re part of the action. It will look good at the end of the month or quarter to show a decent gold position. They're buying gold because it's going up.
The next phase of gold’s bull market will get underway in earnest when the public rushes into the gold market. That’s coming. There's one thing that always brings the public in, and that’s higher prices.
Gord Zelko, Publisher
February 24, 2009
All statements and expressions are the sole opinions of the editors and are subject to change without notice. This article is neither an offer nor solicitation to buy or sell any securities mentioned. The information is based on information that is public and that we believe is to be factual and reliable and in no way do we represent or guarantee the accuracy thereof, nor the statements made herein. MineralSTOX.com is not a registered investment advisor and does not offer investment related advice.
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