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Large gold miners saw declining costs in Q4'19, lifting profit margins

Gold mining costs for the largest producers fell by a median of 4.2% between the third and fourth quarters of 2019.

The median all-in sustaining cost, or AISC, was US$923 per ounce, down from US$947/oz in the third quarter across 17 firms with reported production over 500,000 oz in 2019, according to S&P Global Market Intelligence data. The median profit margin was 38.4% compared to 33.9% in the third quarter, based on a separate analysis of 22 large miners last December.

In the fourth quarter, costs declined for 11 of 17 miners analyzed.

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Fourth-quarter average costs for the Toronto-based Kirkland Lake Gold Ltd. was US$512/oz, 8.9% below third-quarter costs. Its average for the year was US$564/oz, making it the miner with the lowest costs. In its fourth-quarter earnings release, Kirkland Lake reported gold production in the quarter rising about 21% from the same quarter in 2018.

Kirkland Lake's 2020 guidance estimates an AISC between US$820/oz and US$840/oz with the addition of the Detour Lake mine through its purchase of Detour Gold Corp. in January. Through additional exploration investments in Detour Gold, Kirkland Lake executives expect the mine's AISC to be around US$850/oz by 2021, according to its fourth-quarter earnings presentation.

Russian miner PJSC Polyus and South Africa–based Gold Fields Ltd. also showed large declines in their AISC. In the fourth quarter, PJSC Polyus' costs fell 8.3% to US$576/oz, and gold output rose 26% from the same quarter in 2018. Following a ramp-up in late 2018, Polyus' Natalka mine contributed 405,000 oz of gold production in 2019. Gold Fields Ltd.'s AISC fell 8.8% to US$864/oz.

Two of the largest producers based on quarterly production, Barrick Gold Corp. and Newmont Corp., saw costs fall by 6.2% and 4.2%, respectively. With lower average costs at US$923/oz and slightly higher realized prices for gold, Barrick raised its profit margin to 37.8% from 33.3% in the third quarter. Lower costs in the fourth quarter also supported a 36% profit margin for Newmont, formerly known as Newmont Goldcorp. Corp. In the third quarter, Newmont's profit margin was 33.1%.

Six miners faced increasing average AISC between the third and fourth quarters. Agnico Eagle Mines Ltd.'s AISC increased the most, showing a 15.1% gain to US$1,039/oz. Although the company had higher gold production in both the fourth quarter and full-year 2019 compared to the same periods the prior year, it also had higher production costs from a slower-than-expected ramp-up at its Amaruq underground project and the startup of the Meliadine mine in 2019, according to a Feb. 13 earnings release. Both Amaruq and Meliadine are in the Nunavut territory in Canada.

Annual look

Though most miners showed declines in their fourth-quarter AISC, some still showed increases year over year. For instance, Newmont Corp.'s 2019 average AISC rose 6.3% to US$966/oz in part because of higher sustaining capital to support its acquisition of Goldcorp Inc. in April 2019 and other growth projects, the company said Feb. 20. The company's average costs were above the industry median, but nine miners had costs below the median of US$897/oz.

Among the lowest-cost miners, Kirkland Lake Gold. Ltd. and Newcrest Mining Ltd. had the steepest year-over-year declines at 17.7% and 11.6%, respectively.

The gold and silver miner Polymetal International PLC, based in Cyprus, and Canadian miner Centerra Gold Inc. did not report quarterly AISC but both had annual AISC below the 2019 median. Polymetal International's AISC of US$866/oz was just 0.2% above the prior year's AISC, and Centerra Gold's costs averaged US$713/oz, down 5.4%.

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