Gold: all-in sustaining costs at an all-time high
News Arnulf Hinkel, Financial Journalist – 18.07.2022
As an increasingly scarce commodity, gold has a price that is determined by the costs of mining, regardless of the recent development of demand. All these costs added up result in the “all-in sustaining costs” (AISC), the minimum price an ounce of gold must sell on the market for to allow producers to break even. Individual mines’ AISC are regularly published by mining companies and give shareholders, amongst others, an overview of the cost and profit situation of the respective gold mine.
AISC costs: from US$300 to 1,232 in 21 years
The AISC comprise three different types of costs: first the cash costs, which include the pure extraction and processing costs. Second, there are the all-in cash costs, which denote not only the costs of exploration but also those of obtaining the production rights, financing, administration and taxes, as well as royalties. The third cost component comprises all types of expenses incurred in connection with the maintenance and development of a mine. While the AISC for the production of an ounce of gold were around 300 US$ per ounce in 2000, the costs have since seen an almost continuous rise. In 2012, they were already around 900 US$ per ounce and in the first quarter of 2022, they reached their highest level to date: 1,232 US$ per ounce.
The incentive price for an ounce of gold is significantly higher
While the AISC indicate the minimum gold price required for a gold mine to not make a loss, the so-called incentive price is much higher. In addition to the AISC, this price includes the minimum profit an ounce of gold must bring on the gold market to offer mine operators sufficient economic incentive to explore and exploit new gold deposits. The precious metals consultancy Metals Focus once calculated this value for 2017 and came up with a price of around 1,500 US$ per ounce. Since 2017, the World Gold Council reports AISC to have risen by almost 200 US$ per ounce.