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Cost of gold mining at new record level

ESG Arnulf Hinkel, Fiancial Journalist – 21.09.2023

Although global gold mining output was higher than ever before at 170 tonnes in H1 2023, the production costs per ounce of gold were also at an absolute record level. They are calculated as all-in sustaining costs – the so-called AISC – which, in addition to extraction and processing costs, also include all other expenses, i.e. the costs for exploration, for obtaining the extraction rights, outside capital, administrative costs as well as taxes and royalties. On top of that, there are the maintenance and development costs of a mine.

Mining costs up by a factor of 4.5 since turn of millennium

In 2000, AISC were still around 300 US$ per ounce of gold. Twelve years later, they had already risen to 900 US$, before reaching the all-time high  of the time in the first quarter of 2022 at 1,232 US$. Just one year later, according to the Metals Focus Gold Mine Cost Service, AISC rose to 1,358 US$ per ounce. The cost explosion is not due only to inflation, which was still quite high in the first months of 2023, and temporary production cuts caused by the pandemic over the two previous years. The trend towards ever higher mining costs had already started well before 2020.

AISC come nowhere near to covering the gold price

The extraction costs denote the so-called floor for the gold price, below which the continued operation of a gold mine would no longer be economically viable. According to the consulting firm EY, the so-called incentive price, which must be achieved to motivate mining companies to invest continuously in the exploration of new gold deposits and in mining opportunities, is significantly higher at around 1,500 US$ (as of 2022). By the time a freshly produced gold bar has made its way to the private gold investor, wholesale and retail margins must be added on top of processing and transport costs. If the gold price dropped below this level in the long term, the global demand for gold would no longer be satisfied, causing the precious metal to resurge in value due to the resulting demand overhang.

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