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All-in sustaining costs hold steady in Q4'17

The reported all-in sustaining costs of the largest gold producers held steady at a weighted average of US$881/oz in the fourth quarter of 2017, a negligible change compared with the same companies' weighted average in the previous quarter. While several companies reported a significantly different — higher or lower — AISC in the fourth quarter, the majority shifted by less than 10% in either direction.

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OceanaGold Corp., a new addition to this recurring series, given its elevated output in 2017, set gold production records for both the year and fourth quarter while also lowering its fourth-quarter AISC to US$564/oz. In addition, the company's full-year and fourth-quarter net profit set new records of US$172 million and US$89 million, respectively.

OceanaGold President and CEO Mick Wilkes envisions further growth opportunities at the company's Waihi and Haile gold mines, the latter of which contributed strongly to the positive fourth-quarter results. During the quarter, OceanaGold increased its cash balance nearly 20% while reducing its revolving credit facility to US$200 million from US$273 million.

Centerra Gold Inc., a consistently low-cost producer that reports AISC on a byproduct basis per ounce sold, saw a nearly 21% quarter-over-quarter decline to US$571/oz in the fourth quarter, the second-lowest value in this analysis. The company's fourth-quarter gold production dropped 13% year over year to 216,752 ounces, while its 2017 output jumped 31% compared with 2016 to 785,316 ounces. During 2017, Centerra generated US$188 million in free cash flow from Kumtor, the company's top-producing gold asset in Kyrgyzstan, and US$127.4 million from Mount Milligan in Canada.

Acacia Mining plc was another company to report a significant decline in AISC. The US$779/oz reported for the fourth quarter was 17% lower than the previous quarter, while the company's 2017 AISC of US$875/oz was below its full-year guidance and the lowest ever achieved. Acacia outlined several reasons for the decreased AISC, including lower capitalized development and sustaining capital spend at its North Mara and Bulyanhulu assets.

PJSC Polyus, another company with historically low AISC, reported a fourth-quarter value that was 11% higher than the third quarter at US$662/oz. AISC also rose 8% for 2017, which the company attributes to higher stripping expenses. Polyus Gold's fourth-quarter profit declined 28% quarter over quarter to US$267 million, while its operating profit fell 5% in the same time frame to US$391 million, the results impacted by a lower gain on derivatives and lower foreign exchange gains.

Other companies with significant quarterly increases in AISC include Agnico Eagle Mines Ltd., Kinross Gold Corp. and IAMGOLD Corp., with 15%, 9% and 11% rises, respectively. The latter two companies were among the highest-cost producers, recording profit margins of 21% and 16%.

Agnico Eagle's quarterly revenues climbed 13% year over year to US$565.3 million, and operating costs rose 13% during the same time frame to US$287.7 million. The company attributed higher AISC to increased total cash costs and sustaining capital spending. Meanwhile, Kinross forecasts an AISC of US$975 (+/-5%) per ounce sold on both a gold equivalent and byproduct basis for 2018, and IAMGOLD expects AISC to trend downward in the second half of 2018 based on a performance optimization and cost reductions across its sites.

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OceanaGold and Centerra Gold stand out among the top 20 companies based on profit margin, operating at 56% and 52% respectively. Other companies with above-average margins include Evolution Mining Ltd. (52%), Polyus Gold (48%), Barrick Gold Corp. (41%) and Acacia (40%). The weighted-average profit margin, meanwhile, stood at 30.1% for the fourth quarter, not far off from the third (30.5%) and second (30%) quarters, which featured similar company lists.

Looking at enterprise value per ounce of attributable gold reserves, values varied from Centerra's low of US$65/oz to Kirkland Lake Gold Ltd.'s US$742/oz. The group traded at a weighted average of US$240/oz.

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Multiples of enterprise value to EBITDA over the past 12 months traded at an average of 12.6-fold, significantly higher than last quarter's 6.1x. Sibanye Gold Ltd. stands out with a huge 194.2x, while IAMGOLD traded at only 2.6x.

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