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Can South African Gold Miners Continue at a Discount to Peers?

PART:
1 2 3 4 5 6 7
Part 4
Can South African Gold Miners Continue at a Discount to Peers? PART 4 OF 7

What’s Impacting Costs for South African Miners?

AngloGold Ashanti: Lowest cost producer

AngloGold Ashanti (AU) is the lowest-cost South African gold miner. Its AISC (all-in sustaining costs) for the nine months that ended September 30, 2016, came in at $965 per ounce, which was 4.0% higher year-over-year.

Its Kibali and Tropicana mines provide low-cost ounces. The company has increased its AISC guidance for 2016 from $900–$960 per ounce to $980–$1,101 per ounce. Since most of the mining currencies for AU are weakening, any strength in the US dollar (UUP) (USDU) could lead to further tailwinds for AU’s costs.

What&#8217;s Impacting Costs for South African Miners?

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Sibanye Gold (SBGL) has higher costs than many of its peers (GDX). One major reason is its use of more labor-intensive technology, which the South African government promotes. Its AISC for 3Q16 was $1,062 per ton. The company maintained its guidance of $924 per ounce for 2016. As we’ve discussed previously, its cost guidance might come under pressure due to its exchange rate assumptions versus spot rates and an increase in wages.

Improving productivity

Gold Fields’ (GFI) productivity rose after it spun off its South African operations, which were more labor-intensive. Its AISC came in at $1,026 per ounce for 3Q16, which is high compared to its peers.

Harmony Gold (HMY) has shifted to providing semi-annual results, so its AISC information for 3Q16 isn’t available. Its AISC for the year ended June 30, 2016, was $1,003 per ounce.

Since most of Harmony Gold’s production comes from South Africa, a weakness in the rand provided a tailwind in the first half of the year. However, that advantage eroded in the second half of the year as the rand strengthened against the US dollar (USD).

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