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Africa|Environment|Exploration|Gold|PROJECT|Services|Maintenance|Operations
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Capital restraint, lower mine site costs to drive down gold AISC in 2021

Capital restraint, lower mine site costs to drive down gold AISC in 2021

Photo by Bloomberg

4th January 2021

By: Marleny Arnoldi

Deputy Editor Online

     

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Research agency S&P Global Market Intelligence says that, on a by-product basis, all-in sustaining costs (AISC) for gold will continue to decline this year, on the back of a weak foreign exchange environment and tight control of sustaining capital and exploration spending.

In 2019, AISC was up by 3.3% year-on-year to $936/oz, driven by higher royalty and mine site costs, as well as a significant decline in by-product credits owing to weak prices for key metals associated with gold.

S&P Global Market Intelligence says that, despite weaker local currencies against the dollar in major gold-producing countries in 2019 compared with 2018, labour and other mine site costs expressed in dollars rose by 2.3% and 5.5%, respectively, year-on-year.

This resulted in total mine site costs increasing by 2.9% to $684/oz of the overall 2019 AISC.

Annual average exchange rates were weakest in South Africa, Australia and China, softening against the dollar by 8.8%, 7% and 4.4%, respectively, compared with 2018. This was not enough to counter rising labour and other country-level mine site costs, such as for consumables and geological services.

In local currencies, significant increases in wage rates were seen in South Africa, Australia, Russia and Canada.

For 2020 and 2021, S&P Global Market Intelligence estimates gold AISC to decrease by 2.2% and 5.8% year-on-year to $916/oz and $864/oz, respectively.

This will be mainly driven by falling mine site costs and restrained sustaining capital spending – the agency says mine site costs will fall to about $683/oz and $665/oz of total AISC, down by 2.4% and 2.6%, respectively.

“While we expect grades and recovery rates to improve, based on our consensus scenario producer, exchange rates will remain soft in the near term relative to the dollar. As of November 25, average exchange rates in all major gold-producing countries have weakened against the dollar, most notably in South Africa, with a decline of 12.7%, Mexico, with a decline of 10.5% and Russia, with a decline of 9.8%.

“Sustaining capital expenditure will fall by 0.4% for 2020, followed by a more significant 11.9% decline in 2021 because of lower spending by major gold producers to mitigate Covid-19's impacts,” the agency explains.

For example, major gold miner Newmont Corporation reported a 26% decrease in first-half sustaining capital expenditure (capex) spending compared with the year-ago period, primarily owing to placing five assets under care and maintenance, as well as the sale of its Red Lake and Kalgoorlie assets.

S&P Global Market Intelligence also gave a 2020 sustaining capex guidance of $900-million on a consolidated basis, with the top end of the range already slightly lower than the $955-million reported in 2019.

Despite withdrawing its 2020 full-year guidance owing to uncertainty over Covid-19 impacts, Kinross Gold Corporation’s June 2020 results disclosed that the company is still on track to meet its original sustaining capex guidance of $330-million, down by 17% from 2019.

Many major gold producers have revised their guidance for 2020. On an attributable basis, Barrick Gold Corporation’s Tongon, Buzwagi, Turquoise Ridge, Phoenix and Long Canyon operations all project lower AISC for 2020, compared with 2019.

S&P Global Market Intelligence concludes that overall indications are that companies are working to restrain sustaining capex as gold prices rise — a marked change from the expanding capital expenditures and looser AISC cost control seen in the years up to 2011, when gold prices last reached a cyclic high.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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