While the price of gold continues to remain positive, costs in the gold mining industry increased for the second consecutive quarter in Q1 2021.
During this period, the global average All-in Sustaining Cost (AISC) up by 5% quarter-quarter to US$1,048/oz, reaching its highest level since Q2 2013. This, combined with a 4% fall in the average quarterly gold price, resulted in a 14% drop in AISC margins (the gold price minus AISC) between Q4 2020 and Q1 2021. Despite this decline, industry margins remained healthy, with only the top 4% highest cost mines featuring an AISC above the gold price during the quarter.
AUTHOR: Adam Webb, Metals Focus
Increased mine site operating costs were the main driver, with total cash costs (TCC) rising by 6% quarter-on-quarter to US$769/oz. Some of this quarter-on-quarter change was caused by regular seasonal variations in costs in several countries. For example, operating costs during the first quarter are often higher at mines in countries which have harsh winter conditions, such as Canada. Meanwhile, Q1 production and costs in South Africa are usually impacted by the holiday season when many workers take time off, reducing production efficiency.
Pandemic results in extra costs
However, the Q1 2021 rise in costs was not just down to seasonal variations. TCC also increased by 4% year-on-year. This rise was the result of a number of factors.
It must be taken into account that miners now have additional costs related to COVID-19 which did not exist in Q1 2021, such as additional PPE, testing and quarantine procedures.
Also, average grades declined by 4% over this period dropping from 1.44 g/t to 1.39 g/t, as lower grade material has become economic to exploit at higher gold prices, putting further upward pressure on unit costs.
Another factor is that labour costs in the mining industry are rising. This is being driven by increased demand for skilled workers as metal prices incentivise project development across multiple commodities, combined with COVID-19 travel restrictions limiting the availability of workers and contractors.
With these pressures on costs expected to persist throughout 2021 costs are expected to remain elevated in the coming quarters.
About the author:
Adam Webb is director of Mine Supply at Metals Focus. He is responsible for research and analysis of supply and operating costs across gold, silver and PGMs and manages a team of analysts focused on these areas.