Gold's supply-cost curve is steep and steepening quite rapidly. The amount of gold ore extracted is down, and mine production has declined every year for, I think, the last eight years. So, it's getting more difficult and expensive to produce gold. And unlike other commodities, gold producers have generated returns below that of the commodity. So here [famed commodity investor] Jim Rogers is exactly right -- gold companies have generated negative returns for shareholders despite the fact that gold prices have gone up.
And here's what they have to say about one of my four gold mining plays, Goldcorp (GG):
The company has generated about 20% returns annually over the last 15 years. It owns large, low-cost gold projects in Mexico, for example, and is expanding its Penasquito mines. It's developing mines in Chile, some with very attractive economics. It also has a large foothold in the Red Lake district in Canada, one of the best gold-mining regions in the world.
The high end of gold's cost curve is between $600 and $700 an ounce, and it costs $1,500 to $3,000 an ounce to build a new mine. Goldcorp's cash costs are about $350 an ounce, so if gold stays near $1,000 over the long term, it has a very good margin and better returns thanks to the low capital intensity.
They also mention liking Agnico-Eagle Mines (AEM), another one of my gold miners. My other two gold mining plays are Newmont Mining (NEM) and the Market Vectors Gold Miner ETF (GDX).
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