Management of high cost producers always say that they intend to
reduce costs when the POG goes down. (Even NCM who are being sued
by shareholders for non disclosure of price sensitive info are spruiking
lower costs for next year) If they have been
competent management then they would have already reduced
costs and optimised profit for the shareholders last year.
For this reason these promises are not credible.
It is easy to move figures around for a year by curtailing
drilling programs or reducing the removal of overburden, but
that catches up a year later and, hey presto, you have another CR.
It also decreases the mine life due to depletion of verifiable resource
which, in turn, reduces the share price.
IMO it is better to take last years results and factor-in today's POG
tp see where the real profit will likely be. It's a like a stress test.
Most of our oil and petroleum is imported so as our $ goes down our
price of diesel goes up and besides, the Costello/Howard government
set the pricing of diesel and petrol to the Singapore wholesale price
which is outside ACC's juristiction which destines the price of diesel to go
up and not down.
Until these Goldies consistently deliver lower costs of production, share
prices based on these prospective lower costs are simply speculative.
It doesn't make sense to have to drill,quarry,and move 180 ton of
solid rock(1 gr/t) and then crush and grind 30 ton of this rock to dust and then
chemically process and smelt ONE OZ of gold all for$1280 USD
and maintain a very well paid management & board superstructure
and to pay interest on borrowings.
If, as management says, that things will be more profitable next year
then why not reduce management and board base salaries now
and then tie their future salaries to their forecasts? Its putting their
pay packets where their forecasts are.
But that won't happen, mate, and they will likely continue
to CR and mine your hip pocket when their forecasts go pear shaped
So my Advice is to take Gold Miners' last year's NPAT, divide
it by the number of ozs poured (that givers NPAT per oz)
and then subtract $180 from that (the amount the POG has dropped
from 2012-13 to today's price)
If management has been looking after your interests by minimising costs
and if you are pleased with the reduced NPAT/oz then that's fine but
if management has not been acting in the interests of shareholders
last year by not minimising costs but now say that they will minimise
costs next year then why believe them that they are now acting
in your interests just because the POG has dropped.
There are distinctively two types of management/boards:
those who have consistently acted for the benefit of shareholders
and those who have consistently acted in self interest.
There are no tangible indicators that the POG will go up in the next
year; we already have instability in the Middle East and sabre rattling
between the US & Russia and between the US & China and world
economies are struggling with deflation rather than inflation.
IMO, the best strategy is to pick producers with low all-in costs
who are very profitable at these levels of the POG and who
can withstand a temporary POG drop without a CR.
cheers
Moorookamick
PS: Please consult a licensed financial advisor to ascertain if a particular
investment suits your particular needs. mm
