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Inflation drives global gold production costs to their highest level since 2013 - report

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(Kitco News) - According to the latest data from Metals Focus, a leading independent precious metals consultancy, in Q3 2021, the global average gold all-in sustaining cost (AISC) rose by 3.6% q/q to $1,123/oz, its highest level since mid-2013.

While the global average gold head grade improved by 0.5% q/q in Q3 2021, which - coupled with weaker local producer currencies to the dollar - put downward pressure on unit operating costs, this was not enough to counter inflation, Metals Focus said.

“Inflation in local costs pushed global average total cash costs (TCC) higher by 5.3% to $825/oz, the highest since the start of Metals Focus’ dataset in 2012. It is this increase which has underpinned the rise in AISC,” the authors of the report noted.

Throughout Q3 2021, the total cash costs, which encompass the direct operating costs at a mine, have been impacted by inflation across several inputs, including salaries, energy and equipment, among others.

Firstly, Metals Focus pointed that labour shortages, turnover and changing shift patterns as a result of COVID-19 restrictions and infections have led to rising salaries for workers.

Secondly, an increase in the cost of oil is feeding through to higher diesel prices. Moreover, the cost of equipment, parts and spares are rising due to supply chain issues and the higher cost of raw materials used in the manufacture of these parts.

And finally, the consultancy noted that the cost of energy has risen significantly in the last few months, which has had a considerable impact in a power intensive industry.

“As a result, increasing costs and a lower gold price have squeezed margins in Q3 2021. The global average AISC margin (gold price minus AISC) fell by 9% q/q to $667/oz. In Australia, Canada and Russia, average AISC margins fell by 18%, 5% and 7% respectively,” Metals Focus found.

However, the consultancy said that their margins are still substantially higher than in previous years.

At the same time, despite the relatively healthy margins, the lower gold price and rising costs are putting pressure on higher cost operators as evident by AISCs that have risen across every percentile of production compared to Q3 2020.

Metals Focus added that while the proportion of output that is profitable remains high at 94%, it has fallen from 98% in Q2 2021, and that a number of operations and projects are already under strategic review with regards to increasing costs.

“If cost inflation persists and margins diminish even further it is likely that development project approvals will be delayed and also possible that the highest cost production of more marginal producers could potentially be closed,” the consultancy concluded.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.