Gold price going up or mines will close' within six months: Steve Todoruk

His take is that either the metals will start going up in the next six months, or the big mining companies will have to close down a lot of their operations. That, in turn, could squeeze supply, initiating another long-term up move, but at a high cost to the producers.

So where are we headed next for precious metals and mining companies?

Big miners hesitate to cut production

“It all starts with the major mining companies,” says Steve. “These companies take on tremendous risk, along with their shareholders, in operating mines. Upfront infrastructure costs typically range in the billions and it takes years to permit and build them.”

Because of the long lifetime of a major mine – which can span several decades – miners must allow sufficient margin for their production to remain profitable over its lifetime. If prices crash and they lack the ability to maintain a margin, they might never generate sufficient return to get their money back.

There is also the risk of higher costs to produce the metals, through higher labor or equipment costs, for instance. Thus, as Steve says, “mines must make strong profits, because the more marginal the mine, the higher the risk that it could end up losing money.”

Because of these big upfront expenses, mining firms are highly reluctant to halt operations if they can avoid it. So they might keep a mine that is no longer making money — or even losing some — in production for a while.

“It is not a simple thing to shut down a mine,” he says. “You have to lay off all the miners, who may be under contractual obligations and part of a union. A lot of mines lease those big yellow mining trucks and shovels. The company will have to pay a lot of money to send all that equipment back to its owner.”

Read More: www.mining.com/web/gold-price-going-up-or-mines-will-close-within-six-months-steve-todoruk/