After Barrick Gold Tumble, How Mining and Price Dynamics Are Changing

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Precious Metals

Gold’s fall into a bear market this year has compelled as many as eight of the top 10 gold miners to announce asset write-downs to the tune of millions of dollars each.

The combined worth of those write-downs exceeds USD 27 billion, with Barrick Gold Corporation leading the group, declaring a USD 9 billion write-down in the value of its assets. Nearly half the global gold production operated with negative margins during Q2 2013.

The dire state of the gold mining industry is evident from the precipitous 45% decline in value of the NYSE Arca Gold Miners Index since the beginning of 2013. Gold miners are not only faced with weak prices of their output, but also rising operating costs which have escalated more than four-fold since 2001.

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This series of articles will attempt to identify the implications of the current gold price environment for the gold mining industry, and in the process, understand and illuminate the following aspects of the primary production of gold:

  • What is the cost of mining gold and in which direction is it headed?
  • Which are the regions likely to see production cutbacks?
  • Who, among gold producers, will remain profitable?
  • What are the strategies expected from gold producers to sustain this low-price environment?
  • Will production costs set a long-term floor price for gold?

Gold mining: The true costs

The World Gold Council, of late, has been advocating the necessity of reporting the all-in sustaining cost metric for gold producers. This measure accounts for mine production costs as well as sustaining capital expenditure and exploration costs required to maintain production levels.

The average all-in sustaining cost of producing an ounce of gold, for the top 15 gold miners, was around US $1,100 in 2012 and is likely to have edged above US $1,200 per ounce in 2013:

gold-price-vs-sustaining-costs-chart

Source: Beroe Inc.

Up next: A deeper dive into cost drivers.

FREE Download: The Monthly MMI® Report – covering the Precious markets.

MetalMiner welcomes guest contributor Moonmoon Basu, a senior research analyst at Beroe Inc., tracking base metals & precious metals for over two years and specializing in price forecasting. Beroe is the premier global provider of customized procurement services specializing in sourcing, supply chain visibility, financial risk analysis and environmental impact to Fortune 500 organizations. With nearly 400 dedicated procurement specialists in 38 domains, across 9 industries, Beroe proactively invests in knowledge assets to build valuable, real-time procurement insight.

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