Metals Page High prices provide the fuel for intensive global gold

“Gold is the key, whatever else we try, and that sweet metal helps the winner in each case, with love as well as war.” These words were written by Moliere 326 years ago.

Mining for gold really is digging up ready-made money. On the surface, the gold price is currently in the doldrums in public interest. The general print media, TV and radio are looking elsewhere. Of course, the summer calm is actually the best time for the prudent man to buy the precious metal because the gold price will rise further in the near term.

Not caring a whit about the surface calm, the gold badgers are digging away furiously underground with powerful claws and improving techniques, magnificent crushing machines and advancing refining expertise.

This gold rush is not just happenstance. It has been stimulated by the most powerful agent of all, the consistently higher gold price. Gold reached a low point of $284 (US) per oz during 1985, but as it was obviously undervalued, it moved up and during the first half of 1986 averaged $342.66.

It hasn’t really looked back since. Anything over $350 is an excellent gol d price for most mine producers.

The price of gold has been remarkably steady under fire, turning in a far better performance than the price of almost all other investments since the Wall Street disaster of last Oct 19 — the most damaging stock crash in 59 years.

Total global mine output of gold in 1987 is estimated to have been just over 2,000 tonnes. Of this, South African gold production, falling for the third year in a row, totalled a little more than 600 tonnes.

In my 1981 book “Gold,” I forecast, not without some criticism, a decline by South Africa to 600 tonnes gold by 1989. However, I was not pessimistic enough because that figure has already been reached, two years sooner. I also predicted it would decline even further through the year 2002, to some 325 tonnes, not taking into account possible future damage to South African mine output levels because of major civil unrest, sabotage etc. This steady decline is bullish for the gold price. Mine profitability

Gold mine profitability, a strong feature, provides the basic attraction for investors in mines in politically stable countries outside South Africa, such as Canada, the United States and Australia, and in tempting situations such as Brazil. The risk-reward ratio looks like the following:

The federal government in Ottawa has said the average of the cash operating costs of 45 gold mines in Canada in 1986 was approximately $200(US) per oz, with the mines surveyed enjoying a wide range of costs running from a wonderful $93 up to $405. The latter extreme was not, of course, a comfortable situation vis-a-vis the $367 average selling price that year, but 1987 provided $447.

Most gold mines in the world operate profitably with typical break-even costs ranging about as follows: Canada, $200-$300; U.S.A., $100-$300; South Africa, $115-$275; Australia, $170-$250. Gold prices would have to drop to an unlikely $250 before any significant number of mines would have to close or, more importantly, for total gold output to drop alarmingly.

Much higher prices for gold, expressed in the weak Rand currency, cause South African gold mines, already by far the deepest in the world, to concentrate on lower grade ores. At lower gold prices, they would go for higher grade ore. This declining output since 1984 has been largely offset by rises in mine production (and the heap- leaching of gold from limited, long- abandoned tailings dumps) in Canada, the U.S., Australia, Brazil etc.

(To be continued next month)00400 3/8 T. P. (Tom) Mohide, a former president of the Winnipeg Commodity Exchange, served as a director of mining resources with the Ontario Ministry of Natural Resources prior to his retirement in 1986.