Gold: Approaching and breaking the miner’s operation cost

From MelakaFX's Trading Tips-Shufaad

Good day traders!

For bullion traders, I assume we have every reasons to cheer now. The slumped in the yellow metal price is quiet a blessing. As I’m writing, the lowest price for today is $1224, once a resistance area in Nov 2009.

Gold Weekly

Supports are found at $1200 (psycho level), $1150 (1 Jan 2011 resistance are and 25 July 2010 support area), $1100 (another psycho level) and $1045 (31 Jan 2010 low area) – I can simply use the round number here. And yes, I believe you guys have seen it on the chart.

More importantly is the golden question – will it strike through the $1000 level? From my humble opinion, I believe it will not. During the Gold Technical Class since 2010, I’ve been saying the same thing. It will not come near nor breaking the $1000 price mark.

What’s the basis then?

Let me brief you with some of the cost that this gold producer’s,  have to deal with.

1. Sibanye Gold Ltd. (SGL).  Sibanye, South Africa’s second-largest gold producer by output, reported total costs including production and capex of $1,334 an ounce for the three months to March 31.
2. Harmony Gold Mining Co. South Africa’s third-largest producer, were $1,487 an ounce, including operating costs of $1,220 an ounce and $61.07 million of capital spending on the 228,528 ounces it mined during the period.
3. Gold Fields Ltd. (GFI) another South African based company, recorded costs totaled $2,195 an ounce as the company spent money on building its South Deep development.
4. AngloGold, South African’s  largest gold miner, was the only South African bullion producer whose costs in the nation of $1,204 an ounce were below the current spot gold price. It posted cash costs of $896 an ounce and $101 million of capital spending on the 327,000 ounces it mined for the quarter ended March 31. Furthermore, it’s Mponeng mine is the world’s deepest gold operation with seams 2,400 meters (1.5 miles) to 3,900 meters underground. The operation could easily be inflated.
5. Toronto-based Barrick Gold Corp. (ABX), the biggest producer, who operates mines at or near the surface and last posted output and capex costs of $919 an ounce.

Another interesting fact is that the cost of production for South African miners has been propelled much faster than for other producers, due to labor intensive mining practices combined with sharply rising wages.

Both Barrick Gold and Goldcorp Inc. (G), the biggest producer by market value, have  begun reporting “all-in sustaining costs,” a measure that for Barrick includes cash costs, general and administrative costs, rehabilitation, exploration, mine development expenditures and sustaining capital expenditures.

The question remain, how long can this low price sustain?

Happy pipping!