donderdag 29 januari 2015

Oil Versus Gold

What everybody has been ignoring these days is that gold has gone up and oil has gone down.

Let's look at the impact. More info here.

For 1 ounce, miners use 26 gallons of diesel or about 100 liters. We know that diesel costs around 3 dollars a gallon. So we have 3 dollars/gallon x 26 gallons = 78 dollars. 1 ounce = 1300 dollars. This means that energy is 6% of the cost to produce gold.
Top 5 Gold Miners Gold Production & Diesel Consumption

But, the costs are actually higher. The chart below says that one ounce costs 100 dollars on energy. So it's more like 8% of the total cost of gold production is energy. Oil dropped 60%, which means the costs of gold mining just dropped: "cost"*8%*0.6. Let's say we have an AISC of $1200/ounce. That would now be $1140/ounce. I think that is a very significant drop in cost.

Top 5 Diesel Consumption & Cost Per Ounce 

Of course materials and workforce also rely on energy and we didn't take that into account... So mining companies are benefitting greatly from the drop in oil price. The funny thing is that gold miners haven't seen the gains yet, which means I'm buying the mining industry hand over fist now.

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