Rises in both capital and operating costs have become a growing problem for the mining industry, which faces ever higher price tags for everything from skilled labor to power, maintenance and even explosives and prefabricated buildings. The weakening US dollar of late hasn’t helped much either as many report their earnings in US funds. I expect that the impact of rising costs could trigger a correction in the mining sector’s shares. Because of costs differentials, it may not make sense to analyze a precious-metals company as you would any other company, based on the price-to-earnings ratio. In general, a high P/E means high projected earnings in the future (market expectations), yet the P/E ratio for a gold stock doesn’t really tell us much because precious metals companies need to be compared by assets, not earnings.
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