Conversation about exploration and mining always, eventually, gets down to the subject of money – raising it and trying not to spend too much of it.

So that’s the way a conversation went yesterday with one chief executive who got into this business back in 1980 and floated his first company in 1993.

His present base metals operation does have a reasonable amount in the bank so it’s not hard pressed, but nevertheless he was giving some examples of how costs have spiralled in recent years.

Then this week came a report out of Fortis Bank Nederland and Virtual Metals, their latest Gold Mine Cost Report. Worldwide, the cash costs for gold miners have risen by 73% on the 2005 level. That’s way ahead of inflation, of course.

Around the world the average cash cost has risen over five years from $US280 per ounce to $US516/oz. That is not too bad so far as it goes because, in the last quarter of 2009, the average gold price was $US1100/oz, or $US583/oz higher than the average cost of production.

In Oceania, which is predominantly Australia, production costs average $US591/oz, a figure surpassed only by South Africa.

So, there’s nothing to worry about at present, especially now with gold setting new price records. But, as we saw in 1980-81, gold can easily lose that traction and start heading down. In addition, the cost curve is likely to increase here unless someone hits a high-grade discovery.

That’s one thing to keep in mind about the government’s planned super tax.

The other is the potential fate of non-gold commodities.

Gold is going to do well as the developed world stokes the inflationary furnace.

Just in the past week we saw the European Union agree to monetise another $US1 trillion of debt.

Belts are going to be tightened dramatically in parts of Europe, as well as in the United Kingdom. Such uncertainty is good for gold, bad for commodities with industrial uses.

Now, as I have pointed out on numerous occasions, you cannot put too much store in commodity price projections. Inevitably, they are revised upwards or downwards as analyst scenarios fail to pan out.

Notwithstanding that caveat, it’s very interesting to look at the latest forecasts from the Citigroup team in London.

Their five-year projection is for aluminium to be at $US2500 a tonne (against last night’s $US2121/t). They see London Metal Exchange copper in 2015 at $US5500/t (last night $US7025/t), lead at $US1750/t ($US2045), nickel at $US17,600/t ($US22,550), tin at $US17,600/t (US$17,725) and zinc at $US2000/t ($US2100 last night in London).

In real terms, allowing for five years of inflation in between, that is a disastrous outlook. Let’s just hope the analysts have got it wildly wrong.

The Citigroup people are not too cheerful on the outlook for iron ore, either.

In the short term, they see two main sources of resistance to high prices. One, Chinese iron ore production is increasing (even though grade is declining) and, two, there is resistance from the steel mills.

As they point out, the mills are already suffering extreme margin compression and they will need to hike prices another 10% even if iron ore and coking coal prices don’t rise any further.

Citigroup expects iron ore prices to retreat from current highs to $US130/t and then adds this zinger: “In the longer term, we expect the market to move into oversupply mainly because of increasing production from BHP Billiton, Rio Tinto and Vale. Prices are expected to slip further to around $US80/t.”

And all these projections, it seems, assume that China will continue to import at present rates in the near term at least.

But, even if China manages to avoid a downturn, the price projections – coupled with rising costs – have serious implications for the bottom lines of mining companies.

If they turn out to be accurate, then kiss goodbye to so-called “super” profits and Wayne Swan’s budget projections based on gouging the big resource companies.

Even if it gets through the senate – which is problematic – then there are simply not going to be anything like the profits that Swan is dreaming about.

And here’s a little historical perspective.

The recent economic boom in this country has been attributed largely to resources exports.

The previous great boom, economic rather than speculative, was in the early 1950s when wool prices soared (the famous “a pound a pound” – that is, one pound in money for one pound of wool in weight).

Can you imagine Menzies coming up with a “super” tax on the woolgrowers? No, Australians then celebrated their agricultural good fortune and rode the sheep’s back.

Now too many Australians are resentful and envious of the resources miracle that has provided their latest good fortune – or, at least, Kevin Rudd is hoping they are.

Disclosure: the writer owns shares in Rio Tinto.

*Outcrop is a weekly column on ILN’s sister publication MiningNews.net.