COST OF PRODUCING GOLD
Ever wonder how much it costs to produce an ounce of gold? Most of us tend to focus on the market price for gold since that is what we hear referenced on a daily basis.
That makes sense. However, investors and owners of gold mining stocks have valid reasons to pay more attention to production costs of gold in addition to the market price. After all, you have to get the gold out of the ground first, before it can be refined and sold.
The emphasis on a lower cost of production for a mining company is similar to any company in any industry – lower costs result in higher profit margins. So, how much does it cost to produce a single ounce of gold?
$1200 PER OUNCE?
A number cited often by industry insiders is $1200 oz. There is considerable debate, though, as to whether that number is accurate.
Some say that the $1200 figure is the result of accounting/reporting practices that may not reflect all of the costs associated with the mining and production process. In other words, $1200 oz. might not be a “realistically” accurate production cost for gold.
The World Gold Council has their own formula for “all-in sustaining costs”…
Guidance Note on Non-GAAP Metrics: All-in Sustaining Costs and All-in Costs
“The Guidance Note on Non-GAAP Metrics – all-in sustaining costs and all-in costs was first issued in 2013. In light of new accounting standards and to support further consistency of application, the World Gold Council published an updated Guidance Note in 2018, which includes incremental enhancements. We have worked closely with our member companies to develop these non-GAAP measures which are intended to provide further transparency into the costs associated with producing gold.”
There are problems with quoting a single universal cost for producing gold. Mining costs vary depending on the location of the specific activity: region to region, country to country, etc. The regulatory environment impacts the cost as well.
For example, Thomson Reuters GFMS Gold Mine Economics Service reports that average all-in costs for South Africa were over $1,400 between 2005 and 2013 compared to less than $700 in Peru.
There is another item, though, that affects the entire mining industry and which is the subject of this article – rising cost of producing gold.
GOLD MINING PRODUCTION COSTS
The cost to produce and ounce of gold continues to rise. Adam Webb, Director of Mine Supply Metals Focus, had this to say…
Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!