Disappearing Gold! For those who remember the last big write down where millions of ounces! Actually 10's of millions of ounces disappeared overnight. At the time the gold price had fallen and stayed down but gold miners did not adjust their resources. Barrick and others ended up taking massive billions of dollars in write downs when the market forced them to write down their resource numbers.
This is the problem with gold miners they always believe the bigger the resource the better even though it may be unrealistic or not profitable. When gold prices rise gold miners lower their cut-off grade ie break even operation cost. Resources are calculated at a given cut-off grade. The lower the cut off the higher number of ounces. When gold prices fall miners should adjust their cut-off grade higher ie they need to mine higher grade ounces to break even which means the number of ounces in the resource falls....In reality a miner should never be mining gold at break even as it is not truly break even. It may be from an operational stand point but it does not cover all costs. So if you have 1.34 million ounce resource at .25 gpt cut-off you really do not have 1.34 ounces as no one is going into a mine plan to mine at break even....
Sitka's first resource. They did not take the conservative approach to their resource assumption. Many of the existing miners base their resources on $1600 gold. As I recall Victoria Gold used $1700 for Raven. Sitka is using a pit assumption of $1800 so no room for error! Higher the price you are using the lower the cut-off grade you use so the higher the resource numbers. I suspect, at 1600-1700 gold assumption you would raise break even cut-off closer to .35 so you would lose 100-200k ounces.
So very important that gold prices firm up and go higher otherwise the project will sit un-devoploped for many years. Some would say that is a good thing and it would be in some cases. I remember one project the company just went dormant for like 5 years the POG rose and they got bought for a handsome profit. However, that seldom happens as management is pro management not pro shareholder so they generally like to dilute dilute and dilute and then consolidate shares.
See they often win even when they should be losing. Look at Sitka the share price is not really moving much over time but they have diluted and diluted. Yet look at what management pulls down. Cor's company got what a 500k share payment plus a 400k cash payment in Sept alone for Burrow Creek which sits there doing nothing for shareholders.....
I re-iterate gold price must go higher!