The Vet

Rick Rule: Market Malaise Signals Opportunity in Miners

This article and many like it seem to ignore the basic business strategy used by all responsible gold producers. When metal prices are low, the strategy is to high grade the depost, mining the high profit ore and ignoring the low grades in order to maintain margins and stay in business.

However when metal prices are high, the best long term approach is to "low grade" that is to mine and process the ore that wouldn't be profitable at times of low prices. This extends the life of the mine and maximises the recovery of metal from the ore body but of course profit margins suffer due to the utilization of this low grade material.

Sure other input costs have gone up, but lower profit margins of the miners are not solely due to this. Maximising mine life and recovery of all the PM in the ore body due to "salvaging" the low grade material left during the periods of low prices creates a significant drain on margins. However if high metal prices are maintained, the average ore grade will tend to rise and profits will return to more normal levels later in the bull market.