Aurelian Resources Was Stolen By Kinross and Management But Will Not Be Forgotten
The company whose shareholders were better than its management
Message: Changing costs/price structure make Ecuador look MUCH better!!!
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OK ... no 'bleeding cows being dumped into a pool of piranhas' comments this time. The rhetoric on Ecuador country risk seems to have tuned down a bit over the past month but I haven't seen anyone presenting the positive spin that the devaluation of the US dollar will have on the Ecuador mining scene. With a US dollar currency, capital and operating costs are pegged to the US$. This means that the economics of mining in Ecuador have significantly changed in the past 2 months relative to the increase in gold prices. In essence a mine in Ecuador would realize the full $110US/oz run up in gold prices (about 16%) since Sept 1. In contrast a Canadian operation has its capital and labour costs pegged to a significantly stronger Canadian dollar (about 10% stronger in real terms since Sept 1). This means the cost to produce an ounce in Canada would have went up about 10% (say $220 vs $200) and the realized price per ounce converted to Canadian dollars would have went up [(780/1.10 = 709 CDN) vs (670/.95 = 705 CDN) = $4CDN] by $4CDN. The crude conclusion is that Canadian mines costs have went up by $20/oz while revenue has went up $4 so the Canadian mine would be making about $16CDN less per ounce than they were 2 months ago. In Ecuador that gold mine with (say) a $200/oz cost would be seeing about $780-$200 = $580 vs[$670-$200 = $470, $580-$470 = $110] $110US more an ounce or about $100CDN more an ounce today than it was on Sept 1st. Given that nothing else has happened in the past couple of months other than the currency devaluation and the gold price increases, the economics of mining in Ecuador should have improved significantly compared to the changes in say a Canadian or Australian gold mine. The two big ‘take homes’ for us ARU long holds from the crude analysis above are: That projected earnings will have went up dramatically in the last two months; and, that the grade of gold that can be mined will be significantly less than the 2.3 gram cutoff that the resource calculation was based so the # of ounce will have increased and the cost of getting them decreased as they will not have to be as selective when mining. Sounds pretty good to me.So … Doesn’t the dramatic change in cost structure more than offset the so called country risk of a possible 3% to 5% royalty structure? So ……. Where are all the pundits hyping the cost advantage of mining in Ecuador? Just my thoughts on a slow Friday afternoon in which gold has went from $780 to $788 as I played around with this.
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