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The cost of mining gold predicted to fall in 2021 and 2022

In good news for Australian producers, consultancy S&P Global says all-in sustaining costs of mining the precious metal will hit an eight-year low.

Perseus Mining Ltd - The cost of mining gold predicted to fall in 2021 and 2022
Sustaining capital expenditure is also set for an 11.9 per cent decline in 2021.

Gold will become cheaper to mine from next year, if predictions from global consultancy firm S&P Global Market Intelligence hold true.

S&P Global – which has been in the news lately on the back of downgrading Victoria’s triple-A credit rating to double-A, the first downgrade in 20 years – says gold all-in sustaining costs will hit an eight-year low next year.

All-in sustaining costs (AISC) are a measure of the cost of doing business for mining companies, including everything from mine site costs to labour, fuel, electricity, freight, royalties, corporate overheads and so on.

As an example, a gold producer might sell gold at its current price of US$1,878 per ounce, but if it has AISC costs in excess of that figure, it won’t make any money.

Therefore, the prediction AISC will decrease in coming years is good news for Australian gold producers and explorers, who will welcome the dip in market volatility.

AISC to decline for two years

S&P says AISC will decline across 2021 and 2022, due to a “weak foreign exchange environment and tight control of sustaining capital and exploration spending”.

AISC increased in 2019, but S&P expects falls of 2.2 per cent and 5.8 per cent respectively in the next 48 months, reaching eight-year lows next year.

Mine site costs will drop to US$665 of total AISC by 2022, down 2.6 per cent, despite grade and recovery rates improving, says S&P, due to soft exchange rates relative to the US dollar.

Sustaining capital expenditure – the cost required to maintain existing production assets – will experience a slight drop-off for 2020 before a whopping 11.9 per cent decline in 2021 as major gold producers spend less to mitigate the impacts of COVID-19.

The predictions are being further driven by the US dollar’s strong performance against foreign currencies – with the Russian Ruble and South African Rand taking particularly big hits – as well as by-product metal production falling significantly in 2019 and royalty costs increasing.

Good news for Aussie hopefuls

Several ASX-listed gold miners will welcome the AISC predictions. Perseus Mining Ltd (ASX:PRU) (TSE:PRU) (OTCMKTS:PMNXF) is particularly excited about its prospects for 2021, with the producer last week pouring its first gold at its Yaouré gold mine in Côte d’Ivoire, five weeks ahead of schedule.

The company is aiming to produce more than half a million ounces of gold per year at a cash margin of not less than US$400/ounce by the 2022 financial year.

With Yaouré on track, Perseus will become a reliable intermediate gold producer, with two further West African producing mines, Edikan and Sissingué.

Alkane Resources Limited (ASX:ALK) (OTCMKTS:ALKEF) has been producing up to 80,000 ounces of gold a year since 2014, thanks to its Tomingley operations in New South Wales.

And the picture looks set to improve as in mid-December, regional drilling near its Tomingley site revealed gold up to three metres at 58.3 grams per tonne.

A resource estimate will be released once assay results are received, with the company on track to report in January next year.

The company is also buoyed by strong results from the Boda discovery, which is to the north of the Tomingley property.

Near-producer Bellevue Gold Ltd (ASX:BGL), which is focused on its eponymous mine, once one of Australia’s highest-grade gold mines, in November lifted its indicated resource estimate by 20 per cent.

That led to financial consultancy Canaccord Genuity saying it is “extremely enthusiastic” about the company’s strategy, raising its price target to $1.55 a share.

Gold explorers in the news of late include Artemis Resources Ltd (ASX:ARV) (OTCMKTS:ARTTF), Yandal Resources Ltd (ASX:YRL), Tempest Minerals Ltd (ASX:TEM), Kin Mining NL (ASX:KIN), White Rock Minerals Ltd (ASX:WRM) (OTCMKTS:WRMCF), Matador Mining Ltd (ASX:MZZ) and Meteoric Resources NL (ASX:MEI).

- Daniel Paproth

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