Gold Mining Costs Fall as Exploration Spending Sinks

AISC and other cost forecasts fall less than gold price as mining sector 'shrinks'...

 

GOLD MINING costs continue to fall amongst the major producers, according to new research, with total costs lower thanks to further sharp cuts in spending to explore for new deposits.

 

Warning that "Cost optimizations can only go so far," brokerage and investment bank GMP Capital says costs on an all-in sustaining basis – a measure which includes developing new projects for the future – will fall 8% this year from 2013 for the gold industry's biggest miners to $1053 per ounce, but bullion prices are set to drop 16% to $1225.

 

London-based consultancy Metals Focus meantime says that its measure of shareholder cash costs – a proprietary metric similar to AISC but also including tax payments and all capital expenditure – has fallen 6% over the last 12 months to $1206 per ounce for the 10 largest gold miners.

 

Prices in London's wholesale bullion market fixed this morning at $1175 per ounce. The world's 3 largest gold mining companies by output – Newmont (NYSE:NEM), Barrick (NYSE:ABX) and Goldcorp (NYSE:GG) – recently gave AISC guidance for 2015 of $990, $877 and $912 per ounce respectively.

 

"Companies are responding to bleak industry conditions by building mines on a smaller scale than in the past," reports the Reuters news and data agency, 

 

"If there's going to be something go wrong," the newswire quotes Chuck Jeannes, CEO of Goldcorp – the world's largest gold miner by stockmarket capitalization – "you'd rather it go wrong after you've spent $1 billion than $3 billion or $4 billion."

 

US consultancy SNL's Metals & Mining Research says spending on new exploration for non-ferrous metals, including precious metals led by gold, fell in 2014 to $11.4 billion, back around levels first seen in 2007 and almost halving from 2012's peak.

 

"Gold mining companies," said analyst Doug Pollitt of Pollitt & Co. to Canada's BNN recently, "have to make enough money to find and build the next mine, to be a sustainable company."

 

But with gold prices now so low, "We're a long way off from that.

 

"It's a shrinking sector, they haven't found nearly enough to sustain themselves. Where are the Barricks, the Goldcorps, going to get 3 million ounces a year in 2025...?"