UNITED STATES November 28 2013 6:12 AM
NEW YORK (Scrap Register): Given largely industry-wide moves to cut costs, average gold cash costs fell in Q3 13, indicating the progress gold producers have made in cutting costs despite increases in some underlying costs in several key regions, said Barclays Capital in a research note.
Average and marginal cash costs have stepped down, which is important in a lower price environment.
In Q3 13, average (50%) gold cash costs fell 14% q/q and 1% y/y to $654/oz, while marginal (90%) cash costs fell 8% q/q and 6% y/y to $1031/oz. Even after including sustaining capital expenditure, which we estimate to be about $200/oz, average cash costs are still well below current spot prices; however, when applied to marginal cash costs, this leaves but $20/oz of headroom.
The spread between average and marginal cash costs has increased to $360/oz ounce, above the $310/oz three-year average, thus indicating that the progress was more at the base of the curve than at the more expensive end. Of note, our database excludes Chinese operations, where we estimate the average cash cost to be about $549/oz, they added.
Among other moves meant to cut costs, producers disposed of certain operations and drove down administrative costs. While these moves have been largely successful, as evidenced by a step down in costs across the entire curve, a sustained downward move in cash costs is unlikely to extend over the long term, in Barclays view.
As mentioned, most costs have not fallen due to better grades, better technology, or falling labour and electricity costs – items that would indicate a more longterm improvement in costs. In fact, this year producers in South Africa agreed to 7.5-8% wage increases, which will help to keep the region a high-cost producer.