Costs Cast Shadow over Gold's Glitter

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"Miners worry that spending on new projects will become unmanageable."

Costs are becoming an growing concern for gold miners across the world even while they are rolling in cash as profits soar on the back of record bullion prices.

While the high price of silver, copper and other by-products of gold extraction have kept operating costs in check, miners are worried that capital spending on new projects will become unmanageable as labor, steel and energy costs keep pushing higher.

On top of that, gold miners have also suffered as the Canadian dollar, Australian dollar, Chilean peso and Mexican peso have strengthened against the U.S. dollar. Sales of most miners are typically denominated in U.S. dollars, while costs are often based in local "commodity" currencies.

"The average cash cost for the industry is getting up towards $600/ounce. . .not counting capital investment, financing and the other costs," said Greg Hawkins, chief executive of African Barrick Gold .

With big gold deposits getting harder to find, majors are forced to go further afield to replace and expand the size of their reserves and output. But this growth often comes at a higher price.

The price of gold has roughly quadrupled over the last decade. The surge in bullion prices is being driven by inflationary concerns, political turmoil in the North Africa and the Middle East, the European sovereign debt crisis and other issues.

Ironically, the higher price of gold is one of the factors that pushes up average mining costs within the industry, as many miners look to tap easily accessible low grade material that is more costly to process and that would have in been ignored in the past, when gold was trading at a lower price.

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