For a company like Newmont to double their income all it takes is gold averaging $900/ounce vs. $600/ounce (they're current cost per ounce is around $300). So, if gold were to trade at $1200/ounce for a sustained period of time (a fraction of what many "experts" believe is possible), it seems reasonalbe that NEM may be fairly priced at $120 share as it currently trades around $40. If this scenario were to actually play out, some of the junior names would rise 10 fold, in my opinion.
gold's future
- Thread starter quin8670
- Start date
It's my belief that most of the Western CB gold holdings have already offloaded serious amounts of physical in the open market to suppress the price. The problem that the Western CBs now face is that most of these physical gold sales ended up being bot up by the Chinese and Russian central banks that are just beginning to hoard gold as a reserve asset.
one other issue is the hedged miners are short 42 million oz. of gold due to forward sales of future production....
when silver prices hit $50 during the Hunt Bros. fiasco, silver miners that were heavily hedged went belly up since they couldn't cover margin calls on their short positions...
and many start up producers were obligated to sell forward to get bank financing for start up costs
I'm not sure the banks would bail out the Newmonts of the world if their hedge books blew up on them.....
when silver prices hit $50 during the Hunt Bros. fiasco, silver miners that were heavily hedged went belly up since they couldn't cover margin calls on their short positions...
and many start up producers were obligated to sell forward to get bank financing for start up costs
I'm not sure the banks would bail out the Newmonts of the world if their hedge books blew up on them.....
I agree. This is evident by looking at Newmont and Barricks share performance. To me this underperformance tells me two important facts, their combined hedge books have nailed revenues and will continue to get worse as bullion prices increase. Unhedged mid-tier and junior miners are likely going to continue to exhibit overperformance compared to hedged senior producers.