The cost of mining gold predicted to fall in 2021 and 2022

S&P Global – which has been in the news lately on the back of downgrading Victoria’s triple-A credit rating to double-A, the first downgrade in 20 years – says gold all-in sustaining costs will hit an eight-year low next year.

All-in sustaining costs (AISC) are a measure of the cost of doing business for mining companies, including everything from mine site costs to labour, fuel, electricity, freight, royalties, corporate overheads and so on.

As an example, a gold producer might sell gold at its current price of US$1,878 per ounce, but if it has AISC costs in excess of that figure, it won’t make any money.

Therefore, the prediction AISC will decrease in coming years is good news for Australian gold producers and explorers, who will welcome the dip in market volatility.

AISC to decline for two years

S&P says AISC will decline across 2021 and 2022, due to a “weak foreign exchange environment and tight control of sustaining capital and exploration spending”.

AISC increased in 2019, but S&P expects falls of 2.2 per cent and 5.8 per cent respectively in the next 48 months, reaching eight-year lows next year.

Mine site costs will drop to US$665 of total AISC by 2022, down 2.6 per cent, despite grade and recovery rates improving, says S&P, due to soft exchange rates relative to the US dollar.

Sustaining capital expenditure – the cost required to maintain existing production assets – will experience a slight drop-off for 2020 before a whopping 11.9 per cent decline in 2021 as major gold producers spend less to mitigate the impacts of COVID-19.

The predictions are being further driven by the US dollar’s strong performance against foreign currencies – with the Russian Ruble and South African Rand taking particularly big hits – as well as by-product metal production falling significantly in 2019 and royalty costs increasing.