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Which Gold Miners Are Mining at Competitive Costs?

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Cost discipline

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.

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High-cost producer

Iamgold (IAG) is a high-cost producer. It has the highest costs among the companies we’re discussing in this series. 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 a 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, see Can This Acquisition Help IAG Control Costs at Its Rosebel Mine?

Its all-in sustaining costs (or AISC) for 3Q16 were $1,046 per ounce, which was $30 per ounce lower than 3Q15. The reduction reflects the normalization of costs and revised ramp-up at Westwood. The company also narrowed its guidance from $1,000–$1,100 per ounce to $1,050-$1,100 per ounce.

Competitively placed

New Gold (NGD) is hugely competitive as far as its cost base is concerned. The company reported AISC of $682 per ounce in 3Q16, which is even below the cost structure of many senior gold miners (GDX). Its 2016 cost guidance is $750–$790 per ounce.

Agnico-Eagle Mines (AEM) is in a competitive position as far as costs are concerned. There’s 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 3Q16, the company reported AISC of $821 per ounce, lower than $848 per ounce reported in 3Q15. It maintained its 2016 guidance of $860 per ounce.

Eldorado Gold (EGO) reported AISC of $890 per ounce in 3Q16. It included discontinued operations as well. Excluding these operations, its costs came in significantly lower at $777 per ounce. The company also reduced its 2016 cost guidance from $930 per ounce to $915 per ounce. While Eldorado’s costs are not in the bottom quartile of the industry cost curve, its new projects are 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.

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