October 12, 2013
The gold mining industry has not had it easy over the past 12 or so months. After gold prices hit record highs in 2011 and new capital surged into mining projects many gold mining companies and their management teams believed that they could do no wrong.
However, nearly two years on and the industry is in trouble. The price of gold has collapsed, from a high of nearly $1,900 per ounce back in 2011, to within inches of $1,200 per ounce back in July. Unfortunately, according to data compiled by Bloomberg earlier this year, if the price of gold trades below $1,300, around 30%-40% of global mine production is unprofitable. What's more, many mining companies used the high price of gold to value their mines (gold mines, like other assets, are valued according to the value of their contents).
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With gold, silver and Uranium stocks being out of favor one must decide if this is a problem or an opportunity. We have steadfastly refused to buy gold and silver mining stocks for the last two years and as evidenced by the HUI we feel that our decision to hold back has been vindicated. The damage done to the mining sector may not be over yet but this demise is starting to offer up some exciting opportunities in my view.
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