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(Kitco News) - The World Gold Council (WGC) has released a report highlighting the fact that the cost of production of gold could be on the rise. Adam Webb who is Director of Mine Supply at Metals Focus notes costs in the gold mining industry increased for the second consecutive quarter in Q1 2021, with the global average All-in Sustaining Cost (AISC) up by 5% q/q to $1,048/oz, reaching its highest level since Q2 2013.
However, even with the bad news, Webb noted "Despite this decline, industry margins remained healthy, with only the top 4% highest cost mines featuring an AISC above the gold price during the quarter.".
The reason for the increase was due to mine site operating costs. Total Cash Costs (TCC) have risen 6% q/q to $769/oz. Some of this q/q change was caused by regular seasonal variations in costs in several countries. For example, operating costs during the first quarter are often higher at mines in countries that have harsh winter conditions, such as Canada. Meanwhile, Q1 production and costs in South Africa are usually impacted by the holiday season when many workers take time off, reducing production efficiency.
Adding to this, average grades declined by 4% over this period dropping from 1.44 g/t to 1.39 g/t, as lower grade material has become economic to exploit at higher gold prices, putting further upward pressure on unit costs.
We cannot forget the costs of the workers. This is being driven by increased demand for skilled workers as metal prices incentivize project development across multiple commodities, combined with COVID-19 travel restrictions limiting the availability of workers, and contractors.