Not everything about rising commodity prices is beneficial to the mining sector - as witness the number of companies, particularly in the gold sector, which have been reporting poorer quarterly figures despite metal prices being at peak levels.
The real negative factor here relates to the oil price and its effects on mine costs. Along with rising metals prices, mining companies are seeing costs rise enormously - none more so than for those in remote locations with a reliance on diesel power generation for their main electricity supply - not to mention increased costs of running diesel powered equipment.
The real sufferers here are likely to be smaller new producers,which have been compelled to hedge a large proportion of their output forward to satisfy the lenders of the finance needed to get their operations off the ground. If these mine operators are effectively stuck with a fixed low price for a large proportion of their output, but are facing huge rising cost pressures outside of their immediate control, then their whole financial position could be becoming very shaky indeed. Add into this the pressures on labour costs from a perception by workforces and unions that higher metal prices mean that the mining companies can afford much higher pay levels, it looks as though we could see closures and defaults amidst apparent boom conditions!
Of course it's not only gold which is suffering in this way. Many base metals miners are hugely power intensive and unless they have access to mains electricity or hydropower, these could be suffering just as badly. Forward sales of product are certainly not the prerogative of just the precious metals miners.
All costs are currently under pressure - smelting and refining charges will rise for example as the cost of energy filters down through the system. Thus it behoves the cautious investor to look carefully at a company's exposure to power costs against the real increase that company can expect to receive in product sales through higher prices.
Lightning cracks the blackened sky,
Hear the thunder chariot ride
All brave men with hearts of war
Ride the path of mighty Thor
