I just found this thread, and did some number crunching using...

I just found this thread, and did some number crunching using figures from goldnerds.com.au.

I agree with most of the sentiments in this thread, except wonder if the average production costs mentioned are too high.

Goldnerds has data on 300 Aussie lists goldcos, and categorises 43 as producers. Of those, they give the cash costs of production of 32 companies, and the total cost of operations of 27 of them.

And yes, doing the calculation the averages are (without weighting) are $A498 per oz average cash cost of production and $804 average total cost of operations. These figures come down a fair bit if you take out the few extreme juniors at each end of the range.

Cost of production includes fuel and electricity - so, on these figures, there is room for the p.o.g. to come down without putting the vast majority of these producers out of business. They would have to and should be able to cut that average overhead of $306 though - by cutting exploration.

So, if the goldnerds data is correct, I don't think the proposition that costs of production is driving p.o.g. is correct.

I do agree that p.o.g should be much higher - say $1500, but that this is driven by factors other than the costs of production - mainly global gold demand (last quarter for example) was around 900Mt, production near to 700Mt and new resource around 500Mt, and reduced government stocks. The interesting thing for me from this thread is that the total costs of operations sits at $ 200 below the p.o.g (assuming p.o.g $A1000 at the time these figures were provided).

I'd bet if p.o.g. goes up, so will exploration and overhead, leaving the same average 20% average margin.

I'm not sure what all this means for my investment strategy - probably more of my current strategy - forget the explorers and stick to producers with cash cost below $500??? There are about 22 of these companies, of which only 11 are producing in Australia. (Then I cut out those with a market cap to IGV of over $ 100 per oz and that leaves only 4! - but that's beside the point)

When the p.o.g goes up, these companies surely will be the ones whos market cap goes ballistic?

And this also tell me that if the p.o.g goes down (because some Government decides to sell more of the family silver so to speak), it just can't go below a certain level.