Analyzing the total operating costs for gold miners like Barrick

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What are the total operating costs for the gold miners made up of?

Costs are one of the most important metrics to look at for gold mining companies. We’ll discuss each cost category for a company and what it includes.

Direct cost of mining

This cost forms the bulk of the reported costs for a company. It includes costs directly associated with operating mines and removing ore from mines. It includes labor, energy and consumables, stripping, royalties, smelting, and refining costs. This cost is net of by-product credits. So, if a company produces more than one metal that’s incidental to the production of the main metal, then the company can deduct the revenue from that metal from the total cost. This is known as “by-product credit.”

This cost has risen the fastest for gold miners in recent years.

Sustaining capital expenditure

This cost includes expenditure to sustain existing production levels. It may include anything from additional equipment and mine development to exploration expenses, which are required to maintain the current level of production.

General and administrative costs

These costs include costs related to supporting a company’s corporate structure at the head office level. These costs usually include rent, utilities, insurance, and managerial salaries.

Exploration costs

These costs include costs of discovering new mineralized material and converting it into proven and probable reserves. They result in the discovery of additional deposits near the existing mine. Existing infrastructure can be used for its development.

Remediation costs

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These costs include accretion expenses related to asset retirement obligations and amortization related to asset retirement cost. They reflect the periodic costs of reclamation and remediation associated with gold production. They’re required in order to restore the mine’s land back to its natural state.

Cost breakup

The above chart shows the breakup by category for Goldcorp (GG), Barrick (ABX), Newmont (NEM), and Kinross (KGC). The Gold Miners Index (GDX) invests in all these stocks.

Gold-backed ETFs like the SPDR Gold Shares (GLD) are also a good way to get exposure to the physical spot gold market.

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