Guide to Gold & Silver Mining KPIs
This guide highlights the key performance indicators for the gold and silver mining industry and where investors should look to find an investment edge.
Industry Overview
The gold and silver mining industry consists of companies whose primary business activities are exploring, mining, and refining precious metals such as gold and silver. This industry also includes precious metal royalty and streaming companies, which deal with contracts that give the streaming company the right to a percentage of mineral production or revenue in exchange for an upfront payment. Since most silver is a byproduct of gold and copper refining, this guide primarily focuses on the gold mining business.
Key Gold & Silver Mining Metrics
Key performance indicators (KPIs) are the most important business metrics for a particular industry. When understanding market expectations for the gold and silver mining industry, whether at a company or industry level, here are some of the gold and silver mining KPIs to consider:
- Production Volume
- Volume Sold
- Benchmark Price Average
- Average Realized Price
- Cash Cost
- All-In Costs Per Unit (AIC)
- All-In Sustaining Cost Per Unit (AISC)
Gold & Silver Mining Business Model
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Asset Base
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Production & Sales Volume
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Average Realized Prices
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Key Unit Costs
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Valuation Methods
Rights to mineral deposits are the most important assets for gold miners. Mineral deposits are natural accumulations of minerals in the earth’s crust in the form of ore. Using drilling samples and seismic studies, companies estimate the quantity of these minerals in the deposit.
These deposits, also called resources, are classified into various categories based on the level of geological knowledge and confidence. Categories include “measured,” “indicated” and “inferred.” The portion of mineral resources that can be extracted economically are called proven and probable reserves (2P reserves) or simply reserves.
Since mineral deposits are finite, a mining company’s production life is limited to the size of the deposit and production run rate. Mining companies often seek to explore and develop new mines to sustain and grow production volume.
Ore grade (a geological factor) is one of the most important factors in a mine’s profitability. Ore grades measure the quantity of saleable minerals in total ore, reported on a “grams per ton of ore” basis for precious metal mines. High-grade ore mines produce higher output for a given cost and generally report high-profit margins. Because ore grades are not consistent throughout the mine, many companies practice “high grading.” High grading is where companies extract the best quality ore in the initial years to maximize near-term free cash flows and project net asset value (NAV) and keep lower quality ore for later years. This practice leads to a decline in ore grades over the life of the mine, a decline in metal output and ultimately pressure on profit margins. Companies generally try to scale up ore production and invest in new technologies or new mines to compensate for the declining production volume and margin pressure.
Note that gold is traditionally priced and reported on a “per troy ounce” basis.
Gold is an exchange-traded commodity (ETC), and therefore spot market prices drive each company’s average realized prices. The spot prices are adjusted for any quality and location differential for each mine. Given the fixed nature of mining operations, changes in average realized prices have the highest sensitivity to the company’s earnings.
Monetary policy, inflation, real interest rates, and the timing of the business cycle are key factors on spot prices.
Demand Factors
Jewelry accounts for the majority of the global gold demand. The largest markets for gold jewelry are India and China, where gold is considered auspicious and a sign of prosperity. A growing middle-class population in these countries is expected to drive gold demand in the medium term.
Investments account for the second most significant driver for global gold demand. Due to its deep historical currency roots, gold is considered a “safe haven” and “a store of value.” Gold prices are generally inversely correlated to the U.S. dollar and interest rates, positively correlated with inflation, and less correlated with traditional asset classes. As a result, gold is used as an inflation hedge and additional investment portfolio diversifier. Investment demand for gold includes direct ownership of gold bars and coins and indirect ownership in the form of ETFs.
Supply Factors
Mine production accounts for close to 75% of the global gold supply, with the remainder coming from recycling old fabricated products, called gold scrap. Mine production includes both the direct output and the by-product of base metals mining, such as copper, zinc and nickel. Gold mine output is sensitive to gold prices as prices lower than the marginal cost of production will put high-cost miners out of business. However, this is not the case with gold produced as a by-product of base metal mining, as base metal mine economies are not solely dependent on gold prices.
A mining company’s profitability is largely driven by its cost structure, which depends on mine geology, access to infrastructure, labor costs, taxation and operating efficiencies. Investors mainly focus on three widely reported unit costs: (1) Cash Cost Per Unit (2) All-In Sustaining Costs Per Unit (AISC); and (3) All-In Costs Per Unit (AIC).
In association with the World Gold Council, major gold mining companies report AISC, a non-GAAP measure that fully reflects the total cost of sustaining current mine output. It includes total mine operating costs adjusted for any by-product revenues, royalties and taxes, sustaining exploration spending, sustaining capex and corporate overhead. AISC is the single most important cost metric for a gold mining company. Investors use this metric to understand the margin of safety and to evaluate the mine and the company’s position on the global cost curve.
Given changing ore grade over the life of mining operations, different operating lives for each mine and other geological factors, analysts usually estimate the net present value (NPV) of each mine and sum all mine NPVs to determine the enterprise value (EV) of the company. “Price to NPV” and “EV/EBITDA” are other popular relative valuation methods used in the industry, whereas “EV to 2P Reserves” is primarily used in exploration or developing stage mining companies.
Available Comp Tables - Consensus Estimates
Visible Alpha offers 15 gold and silver mining comp tables, comparing forecasts for key financial and operating metrics, to make it easy to quickly conduct relative analysis, whether you are interested in looking at key values for Newmont Goldcorp competitors or gold production volume. Every pre-built, customizable comp tables is based on region, sub-industry or key operating metrics. All comp tables are fully customizable.
Global Financial and Operating KPIs Company Examples:
AMER
- Newmont Goldcorp (NEM)
- Barrick Gold Corp (ABX_CA)
- Kinross Gold Corporation (KGC)
- Agnico Eagle Mines Ltd (AEM)
- Fresnillo PLC (FRES_UK)
EMEA
- AngloGold Ashanti Ltd (ANG_ZA)
- Polymetal International PLC (POLY_UK)
- Harmony Gold Mining Co Ltd (HAR_ZA)
- Endeavour Mining Corp (EDV_CA)
- Centamin PLC (CEY_UK)
APAC
- Polyus PJSC (PLZL_GB)
- Newcrest Mining Limited (NCM_AU)
- Zijin Mining (601899_CN)
- Northern Star Resources Ltd (NST_AU)
- Evolution Mining (EVN_AU)
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This guide highlights the key performance indicators for the gold & silver mining industry and where investors should look to find an investment edge, including:
- Industry Business Model & Diagram
- Key Commercial Banking Metrics PLUS Visible Alpha’s Standardized Industry Metrics
- Available Comp Tables
- Industry KPI Terms & Definitions