In 2008, aluminum prices ran up to $1.40/lb.  Alcoa (NYSE:AA), the largest aluminum producer had a nice run up as well, trading at $44.77 in May of 2008.  Then the aluminum market turned south and over the course of the next nine months, the price of aluminum cascaded down, bottoming at $0.60/lb in February of 2009.

During this period of decline, Alcoa appeared to be cheap all the way down.  It looked cheap when it traded at $30 in August.  It looked even cheaper when it traded down to $20.93 in September.  The value investors were swarming when it traded down to $9 in October.  But the price just kept falling, and Alcoa finally bottomed out at $4.97 in February of 2009.  A nearly 90% decline in just 9 months.

This pricing action looks eerily similar to what is happening in the mining stocks.

Gold was trading north of $1700/oz in November of 2012.  But the gold market has got ugly, punishing every investor that was looking to gold for defense, and punishing the miners even more.

Take Barrick Gold (NYSE:ABX) for example.  The stock was trading at $43.19 in September of 2012, but since then the falling price of gold has taken its toll on the miner.  The stock price appeared cheap at $30.00 in March.  It looked like a steal at $20 in April, but broke through $15 today.

Where is the bottom?

Judging from the price of gold, the bottom could still be much lower.  As of today, gold has now traded down to $1200/oz.  This is a serious issue for the mining stocks because the all-in cost of production of gold has been steadily rising.  For many of the miners, this cost of production is now upwards of $1100-1200/oz.  This means that if the price of gold stays at current levels, many mining companies will struggle to make money.

Barrick Gold is in a little better shape as they estimate that their 2013 cost of production will be around $950-1,050/oz.  So it can still be profitable with the gold price at current levels.  But needless to say, their margins are getting squeezed.

No one knows where the bottom for the miners will be, but Alcoa lost 90% of its value in that 9 month period as the price of the underlying metal declined.  If the miners have a similar move, and if they struggle to remain profitable as the price of gold declines, it is not unreasonable to think that the fair value of these miners might be lower yet.