In Q2’22 costs in the gold mining industry continued rising. The average all-in sustaining cost (AISC) reached a new record high of US$1,289/oz, up 3% q/q and 18% y/y. The average industry AISC has now sequentially increased almost every quarter since Q2’20, rising by 33% over this period. This ongoing rise in costs has been driven by inflation of input costs for miners, combined with high gold prices incentivising higher-cost, often lower-grade, production.
Rising energy prices push AISC to a record high in Q2’22
30 September, 2022
Source: Metals Focus Gold Mine Cost Service
Input costs, including labour, fuel, electricity and consumables, have been rising, largely as a result of the COVID-19 pandemic and related supply chain disruptions. However, the most significant driver of cost inflation last quarter was increased energy prices as a result of Russia’s invasion of Ukraine. This pushed oil and gas prices considerably higher, with direct implications for diesel and electricity costs for miners. Alongside these direct impacts, there were also indirect implications for the prices of key consumables used on mine sites. For example, the price of sodium cyanide, a key chemical used to extract gold, has been pushed significantly higher, in large part due to the rise in energy costs required to manufacture this chemical. Meanwhile, the onset of the pandemic led to a sharp rise in the gold price which has remained at elevated levels. This has allowed lower-grade, higher-cost, material to become economic to exploit. The average grade of material processed by gold miners in Q2’22 reached its lowest level in Metals Focus’ records going back to 2012, dropping by 2% q/q to 1.29 g/t.
The average gold price has remained almost flat q/q in Q2.22
Source: Bloomberg
The rise in energy prices this year has led to many producers increasing cost guidance for 2022. Newmont has lifted their 2022 AISC guidance from US$1,050/oz to US$1,150/oz, while Barrick maintained its AISC guidance range of US$1,070-US$1,150/oz, but expects to be at the top end of this range or even exceed it. Rising industry costs, combined with a comparatively stable gold price (basis the annual average) from Q3’20 onwards, have led to average AISC margins (the gold price minus AISC) declining consistently since reaching a high of US$937/oz in Q3’20. In Q2’22, the average AISC margin fell again, dropping by 7% q/q to US$585/oz. This means that margins last quarter were lower than they were in Q1’20 despite the quarterly average gold price being 18% higher.
Despite a higher gold price, AISC margins in Q2.22 were lower than Q1.20
Source: Metals Focus Gold Mine Cost Service
Looking ahead, Metals Focus expects costs to remain at relatively high levels. However, further increases should be limited by more stable, albeit still high, oil and gas prices, alongside pressure on highest costs producers to cut costs from a falling gold price, which has been on a downward trend in the current quarter.
