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Barrick Gold: Abysmal Earnings

|Includes: ABX, SPDR Gold Trust ETF (GLD)

As noted before in this article, production costs of mining gold are rising much faster than the price of gold (NYSEARCA:GLD). Previously we saw Kinross Gold having trouble getting their acquired asset from Redback Mining into construction/production due to rising capex and production costs. This time it's Barrick Gold who is stating the same.

The net earnings in Q3 2012 plunged in half from the previous year, making Barrick Gold's earnings P/E ratio go over 10. They revised twice their estimates of capex for their mine at Pascua-Lama, which is pretty unprofessional if you ask me. This tells me that costs of production are rising very rapidly.

In the case of Barrick Gold, the point is that production costs have risen to $592/ounce of gold in 2012, while it was $453/ounce of gold in 2011. That's an increase of 32% in just 1 year.

The gold price was $1600/ounce in 2011 and is $1730/ounce in 2012. That's only an increase of 8%.

This means that gold has to at least rise to $2100/ounce or in other words rise another 20% from this level to even match the inflation costs of production from mining the gold.

I expect that this rise in gold will indeed happen as mining will become more and more difficult at this rate.

Disclosure: I am long PHYS.