TORONTO (miningweekly.com) – The average cash costs at gold mines increased 4,1% in the third quarter of this year, to $585/oz, according to ABN AMRO Bank and VM Group Haliburton Mineral Services' quarterly Gold Mine Cost report.
The third-quarter numbers represented the biggest quarter-on-quarter increase since the first three months of 2010.
On a year-on-year basis, the average cash cost for gold mines increased 15,8%, from $504/oz in the third quarter of 2009.
“The growth in costs primarily reflects the weak US dollar, with average cash costs up in every region apart from North America. Increases in labour and power costs saw South Africa remain the most expensive gold producing region,” VM Group said in a press release.
“However, the average gold price in Q3 2010 of $1 227/oz ensured gold miners everywhere enjoyed the most profitable quarter on record, with the difference between the average gold price and the average cash cost a record $642/oz.”
With gold prices expected to reach new record highs in 2011 as investors continue to seek a hedge against risk, gold miners can be expected to reap higher profits as margins expand, the report says.
However, the weak US dollar environment will likely continue into 2011 and will continue to affect production costs in other gold producing regions outside North America.
VM Group forecasts gold to average at $1 424/oz in 2011, which, taken with current average gold cash costs equates to a “huge” margin of almost $840/oz. The question, though, is whether such big margins can be maintained.
Cash costs have risen by an average of 3,8% on a quarterly basis over the past year, so if this trend continues though 2011, average cash costs could potentially reach more than $700/oz by the fourth quarter of 2011, and average $666/oz over the year, the report says.
“This potentially leaves the average margin relative to our average gold price at a very healthy $758/oz.”
Still, the group expresses concerns about the rising cash costs in the industry.
“The seemingly inexorable rise is not sustainable and poses longer-term dangers to the viability of significant segments of the gold industry,” the report states.