U.S., Canada and Latin America the cheapest regions to mine gold: report
Gold is being mined by some of the world’s biggest producers at costs that are higher than the current price of the precious metal, several recent earnings reports have revealed.
“In the commodity world the value-gap is best illustrated by that universal material gold, with the cost profile of one company demonstrating why the U.S. is a preferred destination for new mine developments,” he writes.
He takes AngloGold Ashanti’s (NYSE:AU) (JSE:ANG) latest results as an example. The South Africa-based company, one of the world's biggest gold producers, said Monday its second-quarter net loss shrank to $80 million from $2.17 billion a year earlier partly because of higher gold output.
But once the results were broken down for the miner’s four divisions (South Africa, Continental Africa, Australia and the Americas), it became clear that the Americas unit, which includes Cripple Creek & Victor mine in Colorado, as well as operations in Brazil and Colombia, won the cost race.
According to Bank of America Merrill Lynch, that division produced gold at $765 per ounce, almost $100 an ounce less than AngloGold’s operations in South Africa.
Here comes the AISC
These sorts of analyses are now possible since the industry introduced a new measure that may become a benchmark of industry efficiency for companies and investors: the all-in sustaining costs, or AISC.
For years the market sentiment was that the gold industry’s cost reporting was some sort of a joke. But companies have worked hard to shed that reputation in the past year and a half, making undeniable progress with the institution of the AISC in 2012.
Widely adapted by the sector last year, AISC captures a point-in-time look at what it costs to run a gold mine and generate today’s revenue. That means the measure includes sustaining capital (which gets bigger and bigger as mines get older and grades decline) as well as G&A expenses. It does not include costs such as project capital (which is included in a separate all-in cost measure) or dividends (which are discretionary).
The all-in cash costs reporting metrics have not been without critics. Last month the CEO of Randgold Resources (LON:RRS), Mark Bristow, lashed out against the tool, denouncing AISC as the refuge of companies that were not making any profit. He told Mining Weekly that AISC was just “jiggery-pokery”.
Gold prices were trading modestly higher in early U.S. trading Wednesday. December Comex gold was last up $2.70 at $1,313.30 an ounce. Spot gold was last quoted up $3.40 at $1,312.50.