Gold Mining Flirts with "Zero Rate of Return"

THE COST of Gold Mining has risen so fast, any drop in the gold price would risk forcing new deposits to go un-mined, says a leading mining-stock fund manager.

"For most [new Gold Mining ] deposits discovered today," says Evy Hambro – managing director of the Blackrock Gold & General investment fund – "they're not being found in low-risk locations, so you need quite a high rate of return to justify making that investment. "

Calling $1000 per ounce the "break-even" price for most existing Gold Mining output, "You need a Gold Price not that far away from where it was 6 to 8 weeks ago [at record Dollar highs above $1550]" to reward new projects, says Hambro, speaking to UK fund supermarket and advisory group Hargreaves Lansdowne.

"So we're very comfortable with Gold Prices at their current level...The point at which [the price] would be very well supported because Gold Mining supply would be turned off isn't very far away."

Gold Mining costs rose 17% per ounce in 2010, says analysis from London's GFMS consultancy, while so-called "all in" costs – including capital expenditure and overheads – rose by 20% to $857 per ounce. Add the cost of local infrastructure such as schools, hospitals and roads as often required by new Gold Mining licenses today, and the "true long-term cost of gold mine production" may have reached $950 for new projects as early as 2009, according to GFMS Mine Economics managing director Mark Fellows.

Currently holding £2.9 billion across 89 shares in the Gold Mining and related sectors, Evy Hambro's Blackrock Gold & General presently receives an "elite" four-star ranking from MorningStar, the fund analysis service. It has doubled in value for its investors since July 2006.

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