Posted by Dan Denning on May 25th, 2007
Finding the lowest-cost producer is becoming increasingly important in the mining industry. Prices for base metals are high. Some of this comes from supply/demand dynamics. And some is the result of inflation (a deteriorating U.S. dollar.) Either way, the price signals in the resource market are telling producers to produce more. And normally, producers would do just that, expanding capacity and, eventually, bringing down prices with increased supply.
Only producers are hitting a snag: energy costs. Rising energy costs are taking a bigger and bigger bite out of mining profits. So far, it has not discouraged producers from beginning new projects. But it’s a real issue in the high-profile bidding war for resource stocks.