Alll good news is not really good news in this turmoiled commodity world. So Canadian Zinc's share price and its trading volume picked up a penny or two on a single news release,,, we knew (expected) that was coming anyways.

Canadian Zinc is finally getting its permits issued, Woohoo. Go out and celebrate. Meanwhile the miners across the world (Kinross and Golden Minerals) are shuttering their doors and laying off workers as metal commodity prices plummet. Peoples lives are actually being effected. Do we really think we can get something going in the Canadian territories that can make some money? Estimates are off. Shake your heads folks the world looks awfully negative when it comes to mining. Although I am a long time CZN shareholder,,, my money is being sunk into retirement homes.... Take a look at your next door neighbours grey hairs. That's where we should be mining...the grey hair business. Good luck to all of us as we are going to need it. More dilution, borrowed money will be needed, low commodity prices and no share price apprecaition, dividends or incentive for the little guy to stay here...

Can someone show me why I should invest more $$ in CZN or even stay with the company a little longer. It sure hasn't made me a penny in many months. Only the shorts are winning.

Will gold giants see continued world of hurt?

Operating costs that have risen concomitantly with skyrocketing gold prices and the concurrent lowering cutoff grades and mining marginal ounces in the name of increased production have a lot to answer for, or so says Mickey Fulp, also known as the Mercenary Geologist.

The year 2013 was forecast in PriceWaterhouseCooper’s tenth annual review of global trends in the mining industry to be “a bad year for gold miners,” but even PwC’s crystal ball couldn’t have guessed at the straits in which some gold giants would find themselves.

The report noted that this forecast would be the continuation of a trend, in that “2012 was a particularly poor year for the gold miners”. Of the five companies whose market capitalization shrunk the most, four were gold producers— Barrick Gold Corp. (TSE:ABX) (NYSE:ABX), Anglo Gold Ashanti (NYSE:AU) (ASX:AGG), Goldcorp (TSE:G) (NYSE:GG), and Newmont (TSE:NMC) (NYSE:NEM). In 2012, the Top 40 gold miners lost $29 billion, or 15 per cent of market capitalization.

And that downbeat assessment seems to have put it mildly, with Barrick Gold, Kinross (TSE:K) (NYSE:KGC) and Newcrest (TSE:NM) (ASX:NCM) all taking very public beatings recently, and that’s before Thursday’s market rout, which has seen gold fall almost $80 an ounce across the markets of the Comex.

The market for gold has been bullish for so long, the scarcity that characterizes every boom market – shortages in skilled personnel leading to inflated labour costs, a finite supply of necessary equipment and culminating in premium pricing -- have led to the entrenched inflation of operating costs.

Operating costs that have risen concomitantly with skyrocketing gold prices and the concurrent lowering cutoff grades and mining marginal ounces in the name of increased production have a lot to answer for, or so says Mickey Fulp, also known as the Mercenary Geologist.

“The gold companies only have themselves to blame. They focus on the Wall St. model, which is growth for growth’s sake. Mining is not a growth industry, mining is a value industry, so operating cost margins are essential to successful companies.”

Certainly, the smaller companies have run afoul of the pressure from climbing costs on one side – and the consequent erosion of margins and thus exposure to the vagaries of volatile markets -- and sliding commodity prices on the other, but what of the trouble-plagued giants, those majors not affected by every market twitch?

In two of the cases named above, that is Barrick and Kinross, the company is beset by issues distinct from the nosedive its primary commodity took in April, but Newcrest’s woes can be laid squarely at the door of plummeting gold prices.

Newcrest, Australia’s biggest gold miner, announced earlier this month its intention to write down the value of its mines in Australia, Papua New Guinea and Africa by an eye-popping A$6 billion (US$5.7 billion) as a consequence of a weaker gold price. The announcement also included the news that the company will not be paying a final dividend for the year to June 30.

The price of gold has fallen more than 23 per cent this year and Newcrest’s stock has gone right along with it, taking a massive tumble of more than 26 per cent in the last month alone. The day of the announcement, the stock, which was trading at over A$40 in mid-2011 in Australia, marked a nine year low by hitting A$10.80.

Insult to injury comes in the form of the gold giant being forced to relinquish its place as Australia’s third largest miner -- the top two being BHP Billiton Limited (ASX:BHP) and Rio Tinto Limited (ASX:RIO) -- a place now ceded to Fortescue Metals Group (ASX:FMG) in the wake of the announcement earlier this month.

The write-downs – which in effect wiped out all profit since 2000 – were announced on the last trading day before the Australian long holiday weekend celebrating the Queen’s birthday, a fact guaranteed to stick in the craw of investors. And this latest turn of events has another sting in the tail -- Newcrest now finds itself under investigation from the national corporate watchdog, triggered by the coincidence of analysts dropping their recommendations on the stock in the days before the announcement of the massive write-downs, leading some to suspect beans had been spilled ahead of time. At the time of publication, at least one analyst has come forward to report an ahead of time briefing from the company.

The Australian one-time golden child’s write-downs as a consequence of the bust in the price of gold would have to be chilling to other gold giants as reporting season approaches.

Fulp says he sees “a lot more of these write downs coming” as a result of poor acquisitions made at exorbitant prices per ounce of gold. “What you’re going to see is downsizing in mid tier and major companies. We’ve already seen cuts in exploration and projects being shelved and that’s going to continue. The revision of the philosophy of gold companies is going to take awhile to work itself out, until then, they are in a world of hurt.”

Kinross, the world’s fifth largest gold producer had troubles a-plenty before the price of the yellow metal or the overheated costs of production are factored in; as recently as June 11, the giant’s stock took a whipping after the Toronto-based miner announced a $720 million write-off as it decided to walk away from a $1 billion project.

Even worse for the miner is the fact that the write-down is not even the first this year – the company took a hit of more than $3 billion relating to its Tasiast mine in Mauritania and the Chirano gold mine in Ghana, both projects bought into the company via the 2010 takeover of Red Back Mining in February.

The recent decision by the miner to abandon its Fruta del Norte project in Ecuador came as a consequence of being unable to reach agreement on "certain key economic and legal terms" with the country’s government, according to a company statement released with the announcement, specifically over the matter of a mooted 70 per cent windfall tax.

Being at odds with the government of a host country is a predicament Barrick knows well. The gold giant, already beset by a series of complications stemming from its troubled Pascua-Lama project, was slapped with a $16 million fine in late May by a Chilean court as a result of “very serious” breaches at the site.

The company had hinted at the possibility of suspending the $8.5 billion project, already the subject of cost blow-outs, delays and write-downs, before the fine was levied by Chile’s environmental regulator. Nonetheless, the company made the decision to pay in short order, thus taking advantage of a discounted price of $11.6 million offered by Chile for payments made within five working days, signalling an intention to persist with the project. While the fine’s payment may have been speedy, the other aspects of the court’s ruling that must be satisfied before the project can be reactivated – infrastructure to ensure water safety-- are likely to take at least a couple of years, delaying the project even further.

Although it was decided prior to the imposition of Chile’s punitive fine, one of the measures the giant took to dampen investor fears was a campaign of disciplined capital allocation announced with its first quarter results in April - chief among which was the attention-grabbing figure of $100 million to be cut from the budget for exploration, a measure sure to win fans in a world where miners can barely afford to mine the deposits they know about.

One notable gold producer unlikely to materially curtail exploration is Kirkland Lake Gold Inc. (TSE:KGI), as a continuing campaign of exploration has long been a component of Kirkland’s plan for its mining camp, which covers more than 13,000 acres.

In 2001, the company took over five contiguous formerly producing gold mines, which had seen little in the way of plant upgrade for more than a decade before Kirkland’s acquisition. During the early days of Kirkland Lake Gold’s formation, the company launched a major exploration program that discovered additional gold structures to the south, called the South Mine Complex.

The Ontario-based company is planning to lower production costs predicated on economies of scale, with the expansion capex spend almost complete. Under current plans, the extraction rate of 1000 tonnes per day of ore is to be upped to 2200 tpd, while employment is only to be increased fractionally, from 1000 employees to 1200. As company president, Brian Hinchcliffe, points out, with labour costs accounting for up to 60 per cent of costs, the metric of tpd to employees is a very useful one.

“We can go from a tonne per employee to two tonnes per employee, roughly,” under this scenario, he says, subject to identifying additional reserves.

By measures such as these, Kirkland plans to lower its production cost, already below $1000 -- with the most recently reported operating costs from the company’s third fiscal quarter results published in March at $954 per ounce - to $700 per ounce, with a final all-in cash cost estimated to come in at around $950 per ounce.

Of the fate of his mining confederates, Hinchcliffe ascribes the current parlous state of many gold miners as “chickens coming home to roost” from an unreasoning “push to production.”

In particular, he draws attention to the fact that producers that overpaid for properties in jurisdictions that are not politically secure “have to offset that risk with higher grades,” which all too often was not addressed.

PwC Canada Mining leader John Gravelle, on a web-based Q&A session held a matter of days after the release of the annual review that forecast this year as a calamitous one for gold miners, seems to agree, saying that miners need to demonstrate they can operate profitably. “Miners, led by gold companies, are very focused on bottom line growth as opposed to top line growth. The miners that demonstrate success in 2013 will be rewarded in 2014.”

For now, he says, gold miners should concentrate on keeping their costs down rather than, as was the habit throughout the bull market, focussing on sources of additional production.

“There’s been a big [attitudinal] shift. That’s going to be the push, to keep the focus on low cost assets.”

Apart from everything else, many gold producers are finding themselves cut off from sources of equity funding as investors look elsewhere for returns.

“The biggest factor right now is the loss of investor confidence in gold companies,” Gravelle says on a call with Proactive Investors the day of the online Q&A. “A lot of investors are not willing to invest as a result of costs rising and margins dropping. With gold prices having dropped and a lot of write-downs, and on top of that with issues of resource nationalism [being of concern], they don’t want to be invested in that sector.”

Mickey Fulp is even more emphatic on the subject.

“To regain investor confidence, there need to be some radical changes. Shareholders need to fire the boards. Shareholders have to revolt to get some of these boards replaced; otherwise gold companies are going to continue to languish until they get reorganized.”

Talk of an investor revolt brings to mind Barrick’s annual shareholder meeting held less than two weeks after gold’s massive April market slide, which was marked by a group of institutional investors rejecting a non-binding company resolution on executive compensation. It was a move rarely seen in Canadian business circles, one that signals underlying shareholder disgruntlement with the embattled gold giant.

It was neither the first nor the last in the major’s series of setbacks, but – and here’s a chilling thought – in the figures for the first quarter of the year released slightly before the meeting itself, Pascua-Lama’s sums were predicated on gold prices of $1,700 per ounce.

And like other major gold companies, Barrick bases the value of its reserves on prices near or even above spot – the company uses a long-term price of $1,500 an ounce to calculate its reserves.

With reporting season drawing near, and gold taking another precipitous plunge, further write-downs are inevitable.

Shares in Kinross were trading down on the TSX Thursday, shedding 36 cents from its previous close to hit $5.30 at 10:41 EST, a drop of more than 6 per cent, which leaves the stock valued at less than half its 52 week high, which stands at $10.98 per share.

Shares in Barrick hit as low as $16.99 in intraday trading from a previous close of $18.55 per share, a new 52 week low for the stock.

Shares in Newcrest, which were last traded on the TSX on June 17, were trading at the time at $12.12 per share, well down from the stock’s 52 week high of $32 per share.

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