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Which Gold Miners Look Attractive after 1Q17 Earnings?

PART:
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Part 5
Which Gold Miners Look Attractive after 1Q17 Earnings? PART 5 OF 14

Can Barrick Gold Maintain Its Cost Supremacy Going Forward?

All-in sustaining costs and cost supremacy

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

Can Barrick Gold Maintain Its Cost Supremacy Going Forward?

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Barrick Gold (ABX) achieved AISC of $772 per ounce in 1Q17, representing a rise of 9.3% YoY (year-over-year). The company attributes ~90.0% of the rise to higher sustaining capital expenditures compared to 1Q16.

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.

Improving unit costs

In 1Q17, Goldcorp’s (GG) AISC was $800 per ounce, a fall of 4.3% YoY. The costs were lower than Goldcorp’s guidance for the year of $850 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 expectations of $850 per ounce in 2017, or by 18.0%, between 2017 and 2021.

For 1Q17, Newmont Mining (NEM) reported AISC of $900 per ounce, which is 8.7% higher YoY and 2.0% lower quarter-over-quarter. Its cost performance during the first quarter is better than the company’s midpoint guidance for 2017 of $970 per ounce. Newmont improved its longer-term guidance, with expected improvement due to increased production at Ahafo, ongoing productivity, costs, and capital improvements. These improvements should help offset inflation and the impact of lower grades.

Still on the higher side

Kinross Gold (KGC) reported AISC of $953 per ounce in 1Q17, which is almost flat on a YoY basis and 5.8% lower sequentially. It 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.

Over the longer term, Kinross Gold’s cost structure could fall since its new projects will start contributing to higher production at lower costs. For now, however, its cost structure is on the higher side, leading it to show increased operational leverage to gold.

Among senior gold miners, Barrick has arguably shown the most significant cost improvement. But Goldcorp could surprise us 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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