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The production costs of gold mines rose in the first quarter of this year to the highest level since 2013. The average cost was $1,048 troy ounces, up 5% from the previous quarter. Because the gold price fell by 4% in the first three months of this year, the average profit margin for the gold mining sector in the first quarter was 14% lower than in the last quarter of last year.
Despite higher production costs and lower yields, the profit margins of the gold mining sector are still healthy. According to figures from the World Gold Council only 4% of global gold mining production was unprofitable in the first quarter. For these mines, the so-called All-in Sustaining Costs (AISC) were higher than the Gold price. The AISC is a broad definition of mine production costs, including indirect costs such as exploration of new reserves.
Production costs of the gold mining sector reach highest level since 2013 (Source: World Gold Council)
Average production costs rose mainly because gold miners increased their production. Due to the high gold price, it was profitable for many gold mines to further scale up production, for example by tapping into reserves of a lower quality. This is also reflected in the average ore quality of gold mines, which fell from 1.44 grams of gold per tonne in the fourth quarter of last year to 1.39 grams in the first quarter of this year. Ore quality has continued to decline in recent years, as gold mines discover fewer and fewer large and high-quality gold reserves.
Other factors driving up production costs are the coronavirus measures, which were not yet in force in the first quarter of 2020. Consider, for example, working in shifts, testing staff and quarantine measures. Personnel costs also increased, as the mining sector looks to expand production due to higher commodity prices. As a result, there is more demand for well-trained personnel.
Last year, the gold mining sector achieved record margins thanks to the high average gold price of $1,804 per troy ounce. At the beginning of August, the precious metal even reached a new all-time high from $2,067 per troy ounce.
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This contribution was made from Geotrendlines
