Why Invest

The advantage of investing in shares in mining companies lies in the fact that their value is generally more sensitive to the gold price of the bullion itself. This is because the value of gold stocks is based on earnings forecasts calculated in relation to the life of the mine, in particular with respect to the size of the deposit and the ratio between extraction costs and the expected value of the extracted gold.

Suppose that a gold mine has 1 million ounces to extract and that the value per ounce is $ 1,000. If the production costs will be $ 800 an ounce, the mine will produce a profit of $ 200 million over its lifetime. But if the price of gold rose by 20%, reaching $ 1,200 an ounce, the mine would produce a profit of $ 400 million. This would result in a multiplication of the value equal to 4 times and the increase could be as exponential as the gold price would be higher. Naturally, the hypothesis will prove to be accurate at unchanged costs: a condition which, although it rarely occurs in the long run, equally hardly increases in exponential terms.