The Lure of Gold

1. The Lure of Gold John L. Dobra, Ph.D. West-Coast Annual Economics Teaching Conference COBA/UNR April 16, 2009

2. The Lure of Gold • 7,000 years of seeking gold

3. Gold Facts • “Gold” is one of the oldest words in the English language. • A cubic foot of gold weighs ~ ½ tonne • Gold mining is believed to have started in around 3900 b.c.e. • Gold is indestructible – all of it that has ever been mined is still here • All the gold that has ever been produced (~ 10 trillion ounces) would form a cube less than 60 feet on a side.

4. The Lure of Gold • 7,000 years of seeking gold • Original uses were ornamental

5. The Lure of Gold, circa 1325 b.c.e.

6. The Lure of Gold Egyptians learned how to make gold leaf around 1200 b.c.e.

7. The Lure of Gold The Mask of Agamemnon from Greece, circa 1600 – 1500 b.c.e.

8. The Lure of Gold Jason, of the Argonauts, probably ripped of a placer miner if there is any truth to the story.

9. The Lure of Gold It was not Alexander’s Armies that made him Great, it was Phillip of Macedon’s Gold

10. Joan of Arc

11. Gold Mining This is probably what you think of when gold mining is mentioned.

12. Gold Mining This is probably what you think of when gold mining is mentioned. Or this …

13. Is it ore? Or is it a rock? • 2.5 lbs. of “ore” • 0.001134 Metric Tonnes • At 0.08 ozs./MT  9.07029E-05 ozs. • Value at $900/oz.  8.2¢ • Recoverable Value  6.1¢

14. Is it ore? Or is it a rock? • 2.5 lbs. of “ore” • 0.001134 Metric Tonnes • At 0.08 ozs./MT  9.07029E-05 ozs. • Value at $900/oz.  8.2¢ • Recoverable Value  6.1¢ • It’s a rock. • If you had a few hundred million tons, it would be ore.

17. Marigold Mine Tour October 22, 2002

18. Battle Mountain 12 Miles I 80 East Hill Zone Red Rock Zone UN section Future Mackay Pit

20. Mining in the Red Rock Zone – NW edge of UN property

22. To give you a sense of scale

23. East Hill Zone – East side of the Hill in the previous picture

24. Pit on Section 8 – Note the Altered rock

25. Drill (left) drills blast holes in East Hill Zone. Flags mark holes for assay sampling.

26. The Blast!

27. Ore in East Hill Zone

28. Leach pad under construction. (Facing north – I80 is in background, Valmy power plant on upper left edge of picture) I-80

29. Future home of the Mackay Pit – Facing South looking at the South East corner of UN property

30. And this what you get…

31. Gold Prices

32. Gold Prices

33. Production Costs

34. Production Costs

35. Production Costs

36. Production Costs

37. Production Costs

38. Production Costs

39. Production Costs

40. What about Profits? • Here is where I get in trouble with Mining Industry executives:

41. What about Profits? • Here is where I get in trouble with Mining Industry executives: • “The gold mining industry will never make above normal profits in the long run.”

42. What about Profits? • Here is where I get in trouble with Mining Industry executives: • “The gold mining industry will never make above normal profits in the long run.” • Why?

43. What about Profits? • Why? • Industry Structure and Conduct:

44. What about Profits? • Why? • Industry Structure and Conduct: • Many buyers • Many sellers • No significant entry barriers • Homogenous product • It is about as close as you can come to a perfectly competitive industry.

45. Profits? • Myth – Gold Mining is a highly profitable business.

46. Profits? • Myth – Gold Mining is a highly profitable business. • If this were true, we would all be gold miners!

47. Profits? • Myth – Gold Mining is a highly profitable business. • If this were true, we would all be gold miners! • It is true that there are some highly profitable operations.

48. Profits? • Myth – Gold Mining is a highly profitable business. • If this were true, we would all be gold miners! • It is true that there are some highly profitable operations. • But is it true industry wide and over time?

49. Profits? • To answer the question I put together two historical data series: • Gold Prices • Precious metals industry Return on Equity (ROE) from several sources

50. The Record