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Comp: How Are Gold Miners Progressing on the Cost-Cutting Front?

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All-in sustaining costs

AISC (all-in sustaining costs) include cash costs, sustaining capex, exploration expenses, and general and administrative expenses. It’s quite an encompassing measure that can be compared 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).

To know more about AISC, read Everything you need to know about gold and gold companies.

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AISC for gold miners

The AISC for various miners depends on the grades, efficiency, and geographical breakdown of assets. The average AISC for five significant gold miners for 2015 is $903 per ounce—compared to $911 per ounce for 2Q15. This cost excludes interest charges, impairment, and taxes. So, including these charges, miners’ margins are very thin at the current gold prices.

As the above graph shows, Goldcorp’s (GG) AISC for 2Q15 was lowest at $846 per ounce. It was followed by $895, $896, and $909 per ounce for Barrick Gold (ABX), Yamana Gold (AUY), and Newmont Mining (NEM), respectively. Kinross Gold (KGC) had highest AISC at $1,011 per ounce.

It’s also important to look at the AISC guidance for full-year 2015. Among the companies mentioned, Yamana has the lowest guidance of $830 per ounce, while Kinross has the highest guidance of $1,000 per ounce. However, it’s important to note that Kinross recently lowered its average guidance from $1,050 per ounce to $1,000 per ounce.

Cost cutting

For 2Q15, Newmont has been the most successful YoY (year-over-year) in cost cutting. It had a reduction of 14.50%. The ongoing cost reduction is mainly due to a rise in productivity and efficiency improvements. Newmont’s drive to reduce its cost base is one of the main reasons for its relative outperformance in the gold sector this year.

The VanEck Vectors Gold Miners Index (GDX) invests in senior and intermediate gold miners. The five companies mentioned above form 24.70% of its holdings.

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