The end of gold cash costs as we know them?
Comment of the Day

January 24 2013

Commentary by Eoin Treacy

The end of gold cash costs as we know them?

This article by Geoff Candy for Mineweb may be of interest to subscribers. Here is a section
Earlier this month, both Goldcorp and Yamana released earnings updates and, within them, announced plans to adopt new measures of cost performance.

Goldcorp said, "Working with the World Gold Council, the Company is adopting an "all-in sustaining cash cost" measure that the Company believes more fully defines the total costs associated with producing gold. All-in sustaining cash costs include by product cash costs, sustaining capital, corporate general and administrative expenses and exploration expense. As the measure seeks to reflect the full cost of gold production from current operations, new project capital is not included in the calculation."

While Yamana, in the same week, announced, "The Company believes that an all-in approach to costs is a better way to evaluate and assess its cost structure and, consistent with existing internal practices, the Company includes in all-in sustaining cash costs: by-product cash costs, sustaining capital, corporate general and administrative expenses, and exploration expenses. All-in sustaining cash costs for 2013 are expected to be below $800 per GEO. "

Then, yesterday, both Newmont and Freeport McMoRan used their own versions of these measures when announcing their results. While Newmont didn't make any noises about the newness of the measure, the miner did define it in its press release and, it served as a good counterpoint to Newmont incoming CEO and current COO, Gary Goldberg's, comment that, "In 2013, we will focus on mining fundamentals – from technical competency to safety and social responsibility – to lay the groundwork for profitable growth and more robust cash flow generation."

Eoin Treacy's view Not only have gold miners failed to control costs during the bull market for gold but they face competition for investor attention from ETFs which have a solid record of tracking the gold price. Recent efforts to reduce opacity in their reports is to be welcomed but dividends are still not competitive with the wider market and the sector probably needs the catalyst of substantially higher metal prices to spur demand.

The NYSE Arca Gold Bugs Index has been drifting lower since September, following an impressive short-term rally. It will need to sustain a move above 450 to break the four-month progression of lower rally highs and suggest a return to demand dominance.

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