However take note that when a sensitivity study is conducted on most gold operations, it is revenue that they are most sensitive to. That is either ore grade, recovery or gold price. The lower sensitivity to operating costs and capital costs is quite marked. The same relatio9nship exists for nearly every mine.
In addition apprx 40% of operating costs are fixed and the remainder variable. As an example power costs are a major cost to mines and whether the US$ is going up or down will not make much difference.
At the end of the day I personally dont believe it is wise to be investing in overseas gold operations purely because you think the aussie dollar will go up. If anything, the market risk discount applied to overseas operations is at times very significant and the value that one can calculate against the company is barely reflected in the share price. Examples of this are HIG, CNT, BSG, RBK.
If the gold deposits that these companies have were in Aust the share price of each would be significantly higher.
As a guide I think it is always better to focus on Aussie operations. However the difficulty that we have is that we seek value when we buy. I have grown to appreciate that unless you have inside information as know that there is unrealised share price increase potential, then the market valued a share based on the known public information. Everything is discounted into the current share price.
Unless you have strong technical analysis skills or ability to conduct detailed DCF analysis, I think the best thing we can do as gold share investors is buy into a solid growth story. That is a gold company with a known production growth profile or simply stunning exploration situation.
At the end of the day it is earnings, or the potential for earnings, that drives the valuations for all stocks, yes?
Note - I do not disagree with what you have said, I just believe that for hobnob investors like ourselves, thinking about impacts of the exchange rate should be a very minor consideration.
