How much does gold really cost?

The real cost of gold can be measured with the cost of producing gold. All in Cost of Gold and All in Sustaining Cost of Gold are some of the most important metrics to measure the cost of producing an ounce of Gold. All in Cost of gold has been increasing over the past years. Currently All in cost of Gold for major gold miners is between $1,000 to $1,200. The cost varies between miners and locations depending on various factors such as depth of the mine, cost of labor, climatic conditions etcetera.
Cost of one ounce of gold, gold cost waterfall chart
Cost of one ounce of gold

Everyone knows that Gold is a precious commodity. A key reason for the high price of gold is that its limited availability and it costs a lot of money to explore, extract and refine gold to make it to the final product.  Production costs for an ounce of gold varies from company to company, mine to mine and country to country. But for most major producers of gold the cost of producing one ounce of gold is between $1000 to $1,200. All in cost of gold mining for Centerra Gold, a Canadian Gold mining company is as low as $775, while all in cost for another Canadian gold mining company IAMGOLD is highest at $1,250. This shows that there is great variability in all in costs between miners.

The below chart summarizes all in cost of gold production for major Gold Mining companies for 2020.

Current all in cost of gold mining companies, lollipop chart of all in price of gold
All in Cost of major Gold Mining companies

Evaluating the changes in cost of gold is significant to investors and traders in gold and investors in gold mining stocks. Before analyzing the variations in cost of gold, understanding basic terminologies on reporting of gold cost will be helpful. This article covers the following topics.

1.History of Gold producing costs
2.What are the measures of production cost of gold
3.What is the Cash Cost of Gold?
4.What is All in Sustaining Cost of Gold?
5.What is all in cost of Gold?

6.What is All in Sustaining Cost Margin?

Let’s dive deep.

1.History of Gold producing costs an finance companies.

Cost of mining gold has been increasing due to various reasons over the past few years. The following chart displays how the gold mining costs have changed over the past for a major gold producing company Agnico Eagle. Mining cost of Agnico-Eagles is at $775 in 2020, highest level in recent history.

Production cost of gold agnico eagle
Cash cost of gold history-Agnico Eagle mines
2.What are the measures of production cost of gold.

Standardization of production costs was a problem faced by most analysts and investors earlier. But in 2013 World Gold Council issued some non-GAAP measures to standardize the  reporting of financial results. This was adopted by most gold mining companies which is providing an improved clarity and comparability among gold mining companies.


Cash cost of gold mining was used even before adoption of new reporting standards. The two new measures included by the World Gold council are All in Sustaining Cost of Gold and All in Cost of Gold. All in Cost of Gold (AIC) is the most comprehensive measure of cost of gold production.

From Barrick gold disclosers
3.What is the Cash Cost of Gold?

Cash cost is the cost of mining gold from mines, this will be reflected in the Cost of goods sold in the Income statement of mining companies. Cash cost of mining varies between mine sites even within the same mining companies. Cash cost of Gold is calculated by dividing Total Mining Costs by Units Ounce of Gold production. Cash cost of gold excludes all administrative and capex expenditure of gold exploration.

Cash cost of gold per ounce in Q2 2021 for Agnico Eagles is $748 and Cash Cost of Gold for Barrick gold for 2020 was $699. 

4.What is All in Sustaining Cost of Gold?

All in Sustaining cost of gold is the cost incurred by mining companies to sustain the level of output from the current operational mines. The relative difference between cash costs and AISC, will depend on the life cycle of the mine in operation. Those mines that are advanced in its life cycle will be able to sustain the level of output with a lower level of capital expenditure on exploration and development. Whereas new mines will require higher capital expenditure of exploration and development which increases the AISC in relation to mature sites.


All in Sustaining Cost per ounce for Agnico-Eagle for Q2 2021 is at $1,047. while AISC for Barrick gold for 2020 was at $967, higher by $268 dollars from cash cost of gold. Currently All in sustaining cost of Gold is around $1,000 for most gold mining companies. The World Gold Council reported that the average All in sustaining Cost of gold was at $1,047 in Q1 2021. And reported that all in sustaining cost reached at the highest level since 2013. 

The following components are generally added to cost of goods sold in calculation of All in Cost of Gold.
• General & administrative Expenses
• Accretion and amortization of Operating Sites
• Mine Onsite evaluation and exploration costs
• Current operational mine development expenditure
• Sustaining capital expenditure on operational sites

All In Sustaining Cost is the matrix gold mining companies report with financials and frequently quoted. AISC framework provides investors and analysts with-
• Benchmark the cost of production relating to competitors.
• Indication on the mine life cycle and cost efficiency
• Provides tools to forecast future cashflows for the company.

5.What is all in cost of Gold?

All in cost is the includes All in Sustaining Cost and the expenditure incurred in non-sustaining or growth activities of the company. While sustaining costs are the expenses incurred to sustain the current level of output for a gold mine, Non sustaining costs are those capital expenditure incurred in further development of the sites. These capital expenditures aimed at increasing production capacity or increasing life span of mines.

All in Cost of Gold for most gold mining companies are currently between $1,000 and $1,200. The below table summarizes the all-in cost of gold for major gold mining companies.

CompanyAll in Cost (USD / Ounce)
IAMGOLD$1,250
Yamana$1,100
AngloGold Ashanti$1,090
Agnico$1,075
Newmont$1,060
Nordgold$1,050
Gold Fields$1,010
Kinross$1,005
Barrick$1,000
Eldorado$900
Polymetal$875
Centerra$775
All in cost of gold mining per once for mining companies

All in costs is the most comprehensive matrix of cost of gold production. For an investor in gold mining companies, this matrix provides insights on the future mine development activities of the company. All in cost of gold production includes the following.

• All in Sustaining Cost
• Non sustaining capital expenditure- Capital expenditure on new site development
• Exploration and evaluation of non-currently operating mines
• Amortization and accretion of expenditure not related to current operation
• Community Relation costs not related to current operation
• Other expenses related to development of new mines and increasing the level of output

6.What is All in Sustaining Cost Margin?

The price difference between gold price and All in sustaining Cost of gold is known as All in Sustaining Cost Margin. All in sustaining cost margin is one of the most important profitability matrix of gold mining companies. The cost margins are normally higher when gold prices are high. At low gold prices if firms are not able to reduce cost of gold production, profitability of gold mining companies reduces along with Sustaining cost margin.

Forbes reported that in 2020, Average all in sustaining cost margin reached at the highest level in history at $828 per ounce. The previous highest level of this matrix was at $666, achieved in 2011. AS we can observe higher margins are helping mining companies to increase profitability.

Summary

Real cost of an ounce of gold can be measured as the cost of producing an ounce of gold. Multiple measures are used to compare the cost efficiency between gold mining companies and gold mines. All in Sustaining Cost is the most widely used and quoted measure of cost of producing gold. Thus currently cost of producing an ounce of gold is around $1,000. All in Cost of Gold is the most comprehensive cost of gold, in addition to all in sustaining cost, this includes capital expenditure on further development of production capacity of mines. Sustaining Cost Margin is a widely used profitability ratio used to compare profitability of producing and selling an ounce of gold. Sustaining cost margins are currently at the highest level due to an increase in price of gold.

Reconciliation of production cost to all in cost-from disclosures

To know more on Gold investments read- Which is the largest Gold ETF and what is the amount of gold invested by Gold ETFs?

Largest Gold Producing Countries- Largest Gold Producing Countries

Read along the forecast of gold prices.https://moneygraphit.com/2021/07/31/gold-price-forecasts/

Sources-

https://www.statista.com/statistics/274224/mining-costs-of-agnico-eagle-mines-per-ounce-of-gold/

https://www.barrick.com/English/news/news-details/2021/a-year-of-delivery-and-development-as-barrick-meets-targets-advances-growth-projects/default.aspx

https://www.agnicoeagle.com/English/investor-relations/financial-information/sec-filings/default.aspx

https://www.gold.org/about-gold/gold-supply/responsible-gold/all-in-costs

https://www.ft.com/content/525c48c6-d005-495f-add5-bfe41219af77

https://www.forbes.com/sites/greatspeculations/2021/03/30/gold-miners-recorded-record-high-margins-last-year/?sh=8399dcc45243

https://digitalcommons.mtech.edu/cgi/viewcontent.cgi?article=1054&context=grad_rsch

Jaimon Varghese, CFA
Jaimon Varghese, CFA

Jaimon Varghese, CFA writes on topics related to Finance, Investments and Economics. He is a CFA Charter holder and a member of CFA Institute, Charlottesville, Virginia, USA.

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