Fellow Longs,

Labour costs will not be a problem in Ecuador where the average yearly wage is $3700. On top of this there are not all the multitude of payroll indirects such as workmans comp. premiums, insurance benefits ect. that western companies have to pay also.

It is no wonder Rio Tinto is bailing out of all those projects in the US and the one in Australia. They see the writing on the wall and want to get out while the getting is good. 

It will become increasingly more expensive to bring new projects on line and the cost will become increasingly more unpredictable. More and more companies will shelve non core projects due to this. This in turn will decrease supply to the market which in turn will drive up the price of the respective commodity. Mining companies will then be financially rewarded for not bringing on more production. This will then reinforce this type of behaviour and it will also encourage more companies to stockpile production, selling it only when it is most profitable or strategically desirable for them to do so. Profits will soar for those producers and their share prices will reflect these earnings, bringing huge profits for investor.

This is the exact opposite to what happened over the last 25 years or so when lack of production was punished by lower earnings or mines shutting down. The every increasing need for production only brought more supply onto the market that further depressed the commodities price. It became a vicious circle that ultimately has crippled the mining industry. 

Regards,

F.F.