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Which Pot of Gold: Miners Indicating Upsides in 2017

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Part 8
Which Pot of Gold: Miners Indicating Upsides in 2017 PART 8 OF 15

Can Goldcorp Beat Barrick Gold in Cost Reduction?

All-in sustaining costs and cost supremacy

AISC (all-in sustaining costs) are quite an encompassing measure that you can compare across miners. This is a very important metric for investors to watch. It shows the company’s margin cushion at prevailing gold prices (GLD) (IAU).

Barrick Gold (ABX) achieved AISC (all-in sustaining costs) of $732 per ounce in 4Q16. That was flat YoY (year-over-year) and a rise of 4.0% over the last quarter. In 2016, Barrick’s AISC came in at $730 per ounce, an improvement of 12.0% YoY.

Can Goldcorp Beat Barrick Gold in Cost Reduction?

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Barrick’s guidance for 2017 is $720–$770 per ounce. For 2018 and 2019, it expects to further reduce costs to $710–$770 per ounce and $700–$770 per ounce, respectively.

Cost-cutting measures

Goldcorp’s (GG) AISC in 4Q16 were $747 per ounce, a fall of 24% YoY and 8% quarter-over-quarter. GG’s AISC for 2016 came in at $856 per ounce. Goldcorp is making efforts to increase its production over the next five years.

The same measures that will increase its production will also drive down its AISC due to economies of scale. Goldcorp expects its AISC to fall to $700 per ounce from 2017’s expected $850 per ounce, or by 18% from 2017 to 2021.

Still on the higher side

For 4Q16, Newmont Mining (NEM) reported AISC of $918 per ounce, which is 11% lower YoY and 1% lower quarter-over-quarter. The AISC for 2016 as a whole came in at $912 per ounce. 

Newmont guided for AISC between $940–$1,000 per ounce for 2017 and $950–$1,050 per ounce for 2018. The midpoints of $970 and $1,000 per ounce are significantly higher than its AISC of $912, which the company posted for 2016. The company noted during its 4Q16 results call that the higher cost outlook is mainly due to the “recent events” that it continues to manage.

Kinross’s AISC

Kinross Gold (KGC) reported AISC of $1,012 per ounce in 4Q16, which is 2.1% higher YoY and 1.1% higher sequentially. AISC came in at $984 per ounce for 2016 as a whole, which represents a rise of 1.0% YoY. Kinross Gold expects its AISC to be $925–$1,025 per ounce for 2017. The midpoint of $975 per ounce is lower than its actual AISC of $984 per ounce achieved in 2016.

Among senior gold miners, Barrick has arguably shown the most significant cost improvement, but Goldcorp could surprise and lower its costs significantly.

In the next part of this series, we’ll look at Barrick’s and Newmont’s high financial leverages and see whether or not they matter.

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