Gold majors skating close to the precipice – by Lawrie Williams ( – July 22, 2015)

The latest gold price declines are putting even the majors close to loss-making territory, and the industry’s long-term future could be seriously damaged.

LONDON – Let’s face it, in the light of the latest gold price falls, the gold mining sector now desperately needs something that can set it back on a positive track. Gold stocks are sitting at multi-year lows and for even the gold mining majors their 2015 AISC predictions are now getting perilously close to the levels where gold is currently trading.

Here’s a list of the World’s top 5 gold miners and their announced Q1 AISCs and AISC guidance for the current year.

Rank Company                               Q1 2015 AISC 2015                              AISC costs guidance

1. Barrick Gold                               $927                                                        $860-895
2. Newmont Mining                      $849                                                       $960-1020
3. AngloGold Ashanti                    $926                                                       $1000 – $1050
4. Goldcorp                                      $895                                                       $875-950
5. Kinross Gold                                $964                                                      $1000-1100

Source: Company reports.

As can be seen from the above, three of the top 5 are already probably looking to an AISC level of close to $1000 an ounce or more this year. But perhaps what is even more worrying for gold stock investors in the companies is that some analysts don’t believe even AISC are a sufficient indicator of the real cost of keeping the company on track, as the figure ignores some capital, permitting, and social costs.

In terms of achieved Free Cash Flow, this means that many gold miners will be falling short. Sometimes it is hard for investors to get to grips with the fact that a mining company can report what appear to be profitable mining activities, yet will end up making an overall loss and may even need to dip into financial reserves or sell assets to retain dividend levels.

The World Gold Council also suggests another more rigorous metric – All In Costs (AIC) – which sets the bar a little higher by taking into account costs incurred by a mining company but not necessarily directly relating to current operations, but nonetheless have an impact on overall profit and cash flow figures.

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