Figure of the month: 870 US dollars

News Arnulf Hinkel, Financial journalist – 02.05.2017

Anyone who wants to know how precious gold is must look no further than the current gold price on a trading venue, where demand determines the price. But what is the value of an ounce of gold in terms of production costs? About 870 US dollars, on average. This figure describes the so-called all-in sustaining cash costs (AISC) for the production of an ounce of gold. The AISC formula is a means of calculating the sustainable production costs. They include all of the cash costs caused directly by gold mining and processing, material input, energy, transport and wages, as well as the all-in cash costs , that is all costs caused by the exploration and development of eligible gold deposits, expenditure on subsidy rights and borrowing costs, administrative costs and taxes. Last but not least, capital expenditure for the maintenance and further development of a mine has to be included too, e.g. the research costs to develop more efficient mining technologies. The AISC for an ounce of gold have risen sharply since the year 2000 (some 300 US dollars) and had nearly quadrupled to 1,200 USD by 2013. This not only made gold recycling a much more attractive alternative, but also has driven the gold producing companies to make serious efforts to reduce their production costs in order to stay competitive. In the short run, mining companies would have been able to produce gold on cash costs exclusively, which, at an average of 649 US dollars, represented only slightly more than half of the AISC. In the long run, however, production would have become increasingly unprofitable. Since 2013, most gold mines have managed to reduce their production costs significantly. Today, the AISC for one ounce of gold are at an average of 870 US dollars, and a number of companies are reporting production costs of just over 600 US dollars.

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