Wasn't it you who posted how the price of gold was falling just...

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ghosta

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21/03/24

19:06

Post #: 73001211
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Originally posted by Arh0070: ↑

There seems to be a fundamental misunderstanding as to how the Price of gold impacts different gold stocks in different ways .Eric Sprott has talked about this issue a lot.The companies impacted the most are those who are producers but a high AISC .
For example if the profit per ounce produced is 200$ Us an ounce and the POG goes up 100$ an ounce then the companies profit increases 50%
So it is the high cost producers that benefit the most.
Second it will be the majors who are producers ,they will see an immediate benefit but the percentage increase in profits will be determined by how much profit they make per ounce after costs .so if they make 1000$ Us profit per ounce then a 100 $ increase in the POG will increase profits 10%.
DEG of course has to get permits to build a plant ,raise the money and then build it .After building it ,it takes a year to get it operating at peak capacity and profitability.This will all take at least 3 years from now ,the banks will be first in line to take the profits to pay back the loans.Given all DEGS expansion plans it seems likely that any profit accruing to shareholders will not happen for 10 years in the form of dividends or share buybacks.
Gold in the ground is selling for 15-20$ Us an ounce ,degs is currently priced at 5-10 times that ,so limited benefit to Deg right now from an increase in the POG.personally I think if degs share price rises they will immediately do another 300 million capital raising .The money they have now is only enough to keep the company operating for the next 3 years .They will have nothing left over to build the plant .So unless they can find some bank to loan them 100% of the value of the plant ,another one or two capital raises seems inevitable.
i can’t remember how much DEG predicted its cost of production to be ,it will of course inevitably increase from what they have predicted.But I think it was somewhere around 1000$ Us an ounce ,so a 10% increase in the POG increases future potential profits 3plus years from now by 10% .That is assuming that the price of gold goes up and stays up.The main cause of the rise in the POG recently has been a perception that the us fed will lower interest rates ,weakening the dollar .It gets more complicated for stocks priced in AU dollars as if the US dollar goes down the AU dollar will go up unless we get the scenario of competitive devaluation.
Australia has a primarily resource based economy with China being a big trading partner .China is in a severe deflationary event which may last years .This will impact wheat prices and iron ore prices .It seems inevitable that the Australian economy will struggle as China exports deflation.

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Wasn't it you who posted how the price of gold was falling just as it started into its run of record prices?

Clueless.....

DEG Price at posting: $1.26 Sentiment: Hold Disclosure: Held
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0 Great analysis

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