Cost discipline and lower cost assets are critical for miners (GDXJ) (GDX). They help miners navigate lower metal price environments while improving their margins and free cash flows in times of higher metal prices.
In a commoditized business such as mining, cost efficiency differentiates miners based on command premium and outperformance over the long term.
Iamgold (IAG) is a high-cost producer, featuring the highest costs among the companies we are discussing. On one hand, this high operating leverage supports its outperformance in the initial phases of a gold bull run. On the other hand, this erodes its attractiveness for fundamental investors looking for long-term, high-quality investment.
The prevalence of hard rock at two of its major mines led to lower grades and high costs. To learn more about what the company is doing to improve its costs, please read What is IAMGOLD Doing to Control Costs at Its Rosebel Mine? Its all-in sustaining costs (or AISC) for 2Q16 was $1,114 per ounce, and its guidance was maintained at $1,000–$1,100 per ounce for 2016.
New Gold (NGD) is hugely competitive as far as its cost base is concerned. The company reported AISC of $717 per ounce, which is even below the cost structure of many senior gold miners (GDX). Plus, it reduced its 2016 cost guidance by $75 per ounce to $750–$790 per ounce.
Agnico Eagle Mines (AEM) is in a competitive position as far as costs are concerned. There is still a lot of scope for improvement as its senior peers (RING), including Barrick Gold (ABX) and Goldcorp (GG), have lower costs than Agnico.
However, AEM’s performance has been consistent and has been trending lower in its costs. In 2Q16, the company reported AISC of $848 per ounce and also lowered the 2016 guidance from $850–$890 per ounce to $860 per ounce.
Eldorado Gold (EGO) reported AISC of $933 per ounce in 2Q16. It reduced its 2016 cost guidance from $960–$995 per ounce to $930 per ounce. While Eldorado’s costs are not in the bottom quartile of the industry cost curve, its new projects are relatively lower cost, which should improve its cost profile going forward.
Let’s have a look at these companies’ financial leverages in the next part of this series.