What is the Real Cost of Mining Gold?

posted in: GLD, Gold, Gold Stocks | 0

Mickey Fulp, The Mercenary Geologist, has come out with a tour de force post on the real cost of mining gold. Frankly, this post is long overdue and Mickey does an admirable job of delving into a wonkish and challenging topic with world class expertise. One of the key excerpts:

“Even the most vigilant auditors admit they struggle with drawing lines between operating expenses and capitalized expenditures.  In this regard, mining companies have significant leeway in what their accountants classify as initial capital, sustaining capital, or operating expense. 

Of course, the incentive to appear more profitable is not restricted to the gold mining industry. That said, the nature of capital-intensive extractive industries, including mining and oil and gas, permits the bean counters more wiggle room with the numbers.

If costs are capitalized rather that expensed, mining companies appear more profitable in the short term, and enjoy higher market capitalizations and price multiples. Executives receive larger bonuses and, as long as the company grows, shareholders and analysts remain content.

For much of the last decade gold mining companies have confused investors and Wall Street analysts alike with accounting shenanigans and various methods of illustrating profitability per ounce of gold pulled from the earth. The end result of all this was a complete loss of investor confidence in the gold mining sector and a recent overhaul of how gold miners account for costs and capitalize expenses. Mickey delves into the heart of the matter and explains the real cost of mining gold in both a comprehensive and succinct manner.

Click over to read the rest: The Real Cost of Mining Gold