This post covers a topic much talked about right now – the gold production cost for mining companies.
Just like we discussed a while back in the article on gold production break even level miners are having an increasingly difficult time staying profitable and generating free cash flow at current gold prices.
Recently, ZeroHedge wrote about this. According to Citibank, “a combination of rising unit costs (15% yoy), sustained high capital budgets and a falling gold price have resulted in a fast contraction in margins – so much that no gold company under our coverage will generate Free Cash Flow at spot gold.”
See graph below for illustration on how much of the mining space is under water today.
Read the full article here: http://www.zerohedge.com/news/2013-07-07/citi-no-gold-company-will-generate-free-cash-flow-current-gold-prices
This bodes well for gold prices as a diminished supply should lead to higher prices going forward even if demand should stay constant. As I’ve covered earlier, there are many reasons for why demand should increase going forward though.
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