Pollitt & Co. Newsletter

Murray Pollitt has a newsletter where they cover the mining industry and costs. I agree 100% that new mines have had the greatest difficulty.

The irony is that most people will see the La Ronge gold district as completely mined out, rather than unmined, a brownfields production scenario though it actually put into production a completely new mine against all odds, and totally ignored because its an underground rather than open pit scenario. All of the open pit mines modelled over exhausted UG mine prospects are literally going to disappoint investors very badly, though losses on share prices for companies like GBN.V have been execrable.

Technically speaking, there hasn't been much money for new mines at all. And any money thrown at mines have been for mining prospects pressed into service that had already operated for decades, promising to repeat their discovery right beside. Or like Kinross, had run against the wall of overly hasty development. Look at the cost of of Barrick to implement Novagold's mine, you'll get the idea. In a sense, the costs have been borne through massive dilution of shares within the industry.

The developmental deficit must be managed step-by-step, but at the same time, in order to compete with the bond markets, a gold mine must pay dividends. This was the scenario during the depression, though the advantage during the depression is that you had fixed gold prices and a currency devaluation.

The currency devaluation made all the difference for mining prospects in Ontario during the depression, the situation is not much different now. Gold mining prospects made terrible investments until that time, but the devaluation spurred a lot of growth.

The FOMC meeting is concluding today, long dated treasuries are looking ready for the price rout.

Via Gata.org

http://www.gata.org/files/MurrayPollitt-01-18-2012.pdf

-F6