How Costs Shape Up for Gold Producers

Everyone evaluates gold companies using total cash costs. But precious metal analysts at RBC Capital Markets have gone further and evaluated them on what they call "all-in cost per ounce." This includes exploration, sustaining capital, and general and administrative expenses. The idea is to figure out what these companies are really paying to produce an ounce of gold.

Based on these numbers, the Tier I (large) gold producers have costs of US$582 an ounce, while the Tier II (smaller) producers have costs of US$634 an ounce. The analysts noted that Tier I producers have lower G&A and exploration expenses, just because of their greater economies of scale. On the other hand, the Tier II's require less sustaining capital because they have smaller (and usually newer) operations. They should also have much more free cash flow in the next couple of years as their major development projects come online.

"With an expected decline in project capital spending and plenty of free cash flow available, we look for Tier II Golds and Newmont to be engaged in M&A activity to keep their production tank full, while the Tier I producers like Barrick, AngloGold and Kinross will likely look to continue investing in projects in their existing feasibility/development pipelines," the analysts wrote in a note to clients.

They also pointed out that South African miners are unique in that about 90% of capital spending goes to sustaining capital on existing projects, rather than new mine development. That is due to the very long life of the South African gold reserves.

Peter Koven

Tier I producers: Goldcorp Inc. (GG), Kinross Gold Corp. (KGC), Newcrest Mining Ltd., Barrick Gold Corp. (ABX), AngloGold Ashanti Ltd. (AU), Yamana Gold Inc. (AUY), Lihir Gold Ltd. (LIHR), Newmont Mining Corp. (NEM), Gold Fields Ltd., Harmony Gold Mining Co. Ltd. (HMY)

Tier II producers: Iamgold Corp., Simmer & Jack Mines Ltd., Red Back Mining Inc., Randgold Resources Ltd. (GOLD), Eldorado Gold Corp. (EGO), Agnici-Eagle Mines Ltd., Centerra Gold Inc.

Comments

[novice inve...:]

Thank you for a very informative article but
why are some of the stock symbols
missing in this article?

Mar 17 05:38 AM

[ScroogeMcduck:]

SCROOGE LIKES GOLD

Mar 17 08:31 AM

[upsyde:]

First the concept of " all in cost per oz" seems nice ... touchy feely. Realilty in the biz is quite different and will vary quarter to quarter. I am a gold bug and hence believe we will see gold per oz near $CDN 1800 before the end of the year. I have been following a jr explorer recently turned gold producer. Metanor Resources MTO.V listed on the Canadian TSX Venture exchange. Within 6 months they have poured 20,000 oz gold while fine tuning their mill from 500 tpd to 800tpd and they have stockpiled ~300,000 tonnes of ore from thier open pit. In addition they have a $140M infrasturcture which includes a bridge and road they have built. Additionally they have drilled several hundred holes on their open pit property and are now proceeding to the high grade underground mine which has over 500,000 known resource. A steal... trading at less than 40% of infrastructure alone, not even consideration given to an ounce of gold in the ground .. trading at .50cents a share !!!!! Now tell me how the hell does "all in cost per oz" seem to have any bearing on value of MTO.V which next quarter will produce another ~ 5000 oz but complete underground galley work and other improvements. Seems like an impossible calculation to arrive at the cost per oz of gold produced. Good read on the company ... a 10X bagger here folks miningmarketwatch.net/...

Mar 17 06:53 PM