VANCOUVER — Cost optimization has been an underlying theme for gold miners over the past few years. Volatile metal prices and frugal capital markets have manufactured a difficult balancing act between sustainable production growth and strong profit margins. In most cases profits have won out, as producers have committed to cutting cash costs at the expense of undercapitalizing mines.
According to an early December report released by Dundee Capital Markets, however, it is "readily apparent that costs have remained sticky" in the gold space. Dundee modeled the fully loaded cash costs (FLCC) for 18 gold producers in its coverage sphere, and found that only nine generated positive margins before accounting for growth capital, dividends or debt repayment.
Dundee defines FLCC as the sum of: total cash costs (including royalties), general and administrative expenses (G&A), exploration expenses, cash taxes, cash interest and true sustaining capital costs. Under the FLCC metric and a gold price of US$1,287 per oz, the investment firm determined that cash margins were on average negative US$5 per oz during the third quarter, which is down from roughly US$33 per oz during the comparable period in 2013.
Read the complete article at NorthernMiner.com/news/dundee-cost-reductions
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