New mined gold output still not falling

What has been vexing many analysts is that global new mined gold production has so far not been falling, despite the much lower gold price.  This has been put down to a number of factors – most notably the mining companies’ successes in cutting costs.  However this has been hugely aided by, in may parts of the gold producing world, dramatic falls in local currency parities against the US dollar (miners get paid for their gold in dollars, yet many, if not most, of their input costs are in the mine’s local currency thus substantially reducing the impact of the US dollar fall in the gold price – this applies to no less than eight of the world’s top gold producing nations, and to most others too), coupled with the huge fall in the oil price – oil forms an important element in input costs).  Add into that that closure costs can be very expensive so miners may struggle on with marginal operations in the hope that the gold price may start to turn up again and closures have so far pretty well been restricted to aging mines where ore has been depleted and would have closed anyway, countered by some big projects already in the pipeline which are only now hitting full production targets.  an example here is Barrick/Goldcorp’s Pueblo Viejo mine, reckoned to now be the word’s third largest single gold mining operation which is only now pretty well at full output capacity.

While there have been suggestions, like that from Randgold’s Mark Bristow, that around 50% of the world’s gold miners are currently unprofitable, research from precious metals specialist consultants, Metals Focus, suggests that on an All in Sustaining Costs (AISC) basis, in the latest quarter for which statistics are available (Q3 2015) only around 15% of the world’s gold mines were in the red – a figure which rises to around 20% after the latest gold price falls.  See my article on Seeking Alpha for some more detail here: Only 15% Of World’s Gold Mines Were Loss Making In Q3 Despite The Gold Price Fall.

It is interesting that Metals Focus has noted a substantial reduction in both Total Cash Costs and AISC even in regional areas like North America, where the biggest proportion of global gold mine output comes in from the USA which. of course doesn’t benefit from the currency factor. The miners have thus been very successful in cutting General and Administrative costs which had been allowed to get out of hand in the years when the gold price was rising fast, as well as mining to higher grades which also effectively reduces unit production costs.

Now this cannot go on for ever.  Many of the cost cuts which have been implemented will be having longer term effects on the industry and these will increase in impact as time progresses – in many cases even if the gold price does start to rise again.  These include the abandonment of capital programmes and big  reductions in exploration, which will tend to impact on gold output in the years ahead.  The aging mine factor/reserve depletion factor will also increase as time progresses so we will likely see a fall in gold output in the short to medium term regardless, but this has not been, and will not be, as fast a process as most analysts have suggested.

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