Why Read: Because it puts current escalating mining capital and operating costs into a somewhat different perspective, and arguably escalated concern.
Featured Article: A recent article reported that Aram Shishmanian, CEO of the World Gold Council has said that the physical gold price will need to reach U.S.$3,000 per ounce within five years "for the industry to stay profitable" - this in circumstances where gold miners 'currently needed a gold price of U.S.$1,300 per ounce to survive". Mr. Shishmanian is also reported as saying this required gold price increase has to do not only with escalating costs, but also the:
- cost of dividends; and,
- host nation taxes.
He also is reported as saying "If this continues for the next five years the gold price needs to be at least $3,000 per ounce (for gold miners) just to stay in the business".
Finally, Mr. Shishmanian is reported to have said he was optimistic sustained demand would drive prices higher over the long term as future demand would come from emerging markets, central banks and investors. In particular he seems to believe "emerging markets are going to hold increasing amounts of gold reserves (as) holding billions of dollars doesn't help them. The alternative potentially is gold".
Commentary: United Kingdom based World Gold Council, with operations in the Far East, India, and the United States, is a non-profit organization of twenty-two of the world's leading gold mining companies. Collectively those companies generate approximately 60% of the world's corporate gold production. Mr. Shishmanian is a former head of Accenture's global financial markets practice. Accenture is a global management consulting, technology services and outsourcing company. Information summarized from Wikipedia.
Given the World Gold Council descriptor and Mr. Shishmanian's background it seems implausible that Mr. Shishmanian:
- would make the comments attributed to him without the prior knowledge of the executives of the gold mining companies that both sit on the World Gold Council Board, and comprise its membership; and,
- does not have a deep understanding of, or as a minimum a strong, well-founded opinion with respect to, what (reading between the lines) he seems to see as a likely unhappy outcome (read one or more further financial crises) to the current world economic turmoil.
Stated more directly, in order for Mr. Shishmanian to make the statements attributed to him, he and the gold mining executives and companies he indirectly represents must be strongly of the mind that the price of physical gold will trend higher from current levels. Otherwise:
- those executives, skilled workers, and labour who work for gold exploration companies, gold developer companies, and gold mining companies all ought to start looking for jobs; or,
- Mr. Shishmanian made the statements he did unilaterally, which seems unlikely.
Gold miners need $3 000/oz price in five years - gold council
Source: Mining Weekly (from Reuters), May 15, 2012
Reading time: 2 minutes, thinking time much longer