This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Digging for Opportunity in Precious Metals, Part 3

In a world populated by small corporations, and blessed with abundant resources, this simplistic mantra was in fact a general economic truism ... about 100 years ago. In today's world of scarce resources, already over-populated with mega-corporations, it is a dinosaur-strategy, assuring one's path to extinction.

While this observation is appropriate to most of the corporate world, it is especially easy to illustrate the truth of this (modern) principle by examining precious metals mining. Look at every large gold mining company on the planet, and one will see the clear illustration of a strategic decision by management: The choice to operate a (relatively) small number of mega-mines, vs. choosing instead to produce gold from a larger number of smaller mines.

At a very elementary level, this strategy may seem to represent wisdom. The simplistic corporate mantra is that larger operations must be "more efficient" than smaller ones. While this assertion is not necessarily true in general, it is patently untrue with respect to precious metals mining (and most forms of mining).

In a world of diminishing resources, resource scarcity implies two realities in mining. The number of (undeveloped) "large deposits" in the world is steadily declining, and the "grades" (i.e., richness) of the ore is also steadily declining. This means extracting/crushing/refining more and more tons of ore to get less and less ounces of gold.

From an environmental standpoint, this is an appalling dynamic. To begin with, the amount of environmental disruption/devastation that results from mining operations rises exponentially with the size of the mine. One large mine (typically) doesn't produce an amount of "pollution" equal to four mines, one-fourth its size -- but often two or three times that quantity. Yet even from the standpoint of corporate efficiency, this is clearly an inept, if not suicidal, strategy. In our world of scarce resources, nowhere is this reality more apparent (and expensive) than with respect to energy. At best (i.e., producing high-grade ore from efficient mines), mining companies represent a highly energy-intensive form of industry.

Deliberately choosing to produce gold from deposits with rapidly declining grades, in an economic paradigm of soaring energy costs, in an energy-intensive industry, is nothing less than a recipe for destroying one's own profit margins. Out of desperation, the large-cap gold miners have turned to polymetallic deposits for their jumbo mines, bolstering their sagging bottom-lines by using the "credits" from these other metals to offset soaring production (energy) costs.
2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $111.31 0.48%
FB $92.80 -1.29%
GOOG $645.44 0.62%
TSLA $241.46 -1.91%
YHOO $30.96 0.34%


Chart of I:DJI
DOW 16,790.19 +13.76 0.08%
S&P 500 1,979.92 -7.13 -0.36%
NASDAQ 4,748.3610 -32.9030 -0.69%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs