Mason Res Corp MSSNF

Exponential Valuations

[ThaiDiamond]

"As the price of gold goes up, the cost to remove it does not."

One of the key factors for a higher gold prices is inflation.  If/when we do end this deflationary cycle and inflation returns, you will have significantly higher energy costs. Indeed, energy will be one of the chief components of any future inflation.

I see scenarios of oil going into the $70 - $80 dollar range as China and India begin to resume they former pre-cash growth which is already starting to happen. And much higher, two and five years out.

Mining gold -- or any metal -- is very energy intensive. As energy costs increase, mining margins get squeezed. Yes, higher metal prices offset this, but partially not entirely.

As the POG went up from some $300 per ounce to to over $900 in the 2003 - 2008 period (a 200% increase) the price of oil went from twenty something bucks a barrel to over $145 (a 600% increase!).

The other big factor in mining is labor costs. Again, we just saw that as the POG shot up, demand for geologists -- using just one labor component of mining for gold -- also became hard to source. Labor shortages increased costs and delayed projects, which also added additional cost pressure.

The price of copper was in the 90 cent range in the 1990s...then hit a high over $4 a pound last year. That's a component of inflation given the myriad uses of Dr. Copper.

Yes, higher mining "profit" will be had after offsetting higher operating costs....but I've got a problem when I see the world "exponentially."

Having said that, what could get us to "exponential" share price appreciation is, as the POG goes up (along with inflation), investors begin to rush in to buy gold stocks.

Stocks are priced at "multiples" to cash flow (for producers) or ounces in the ground (for explorers).  An increase in the multiple investors are willing to pay to own the underlying equity, will get the "ten bagger" we want to see because the gold equity market is so very tiny compared to the cash the "could" be invested.

The multiple for any given equity is a reflection of the economic climate and the industry fundamentals. If much more of the world wants gold, well...there's not a lot to go around. And global production has been declining over the past couple of years.

So what we really need is for investor sentiment -- their perceptions -- to change. And to see developments there, watch the "multiples" they are willing to pay.

It's good news that you're "quite content to sit back and wait" because patience is usually the spice needed for huge upside gains. Sentiment rarely changes overnight.