The November 2010 issue of the Gold Mine Cost Report, published by ABN AMRO Bank and VM Group Haliburton Mineral Services, examines the changes in gold mine production cash costs in Q3 2010. Growth in average gold mining cash costs rose by 4.1%, to $585/oz, the largest quarter-on-quarter increase since Q1 10. On a year-on-year basis, the average cash cost for gold mines escalated by 15.8%, from $504/oz in Q3 09.
The growth in costs primarily reflects the weak US dollar, with average cash costs up in every region apart from North America. Increases in labour and power costs saw South Africa remain the most expensive gold producing region. However, the average gold price in Q3 10 of $1,227/oz ensured gold miners everywhere enjoyed the most profitable quarter on record, with the difference between the average gold price and the average cash cost a record $642/oz.
Median costs in Q3 10 rose more modestly, up 1.6% quarter-on-quarter, to $575/oz, but for high cost producers the effect was more pronounced, as marginal costs of production rose proportionally more than those below the median level. Upper quartile and 9th decile production costs climbed 10.5% and 9.1%, respectively on the quarter, to $705/oz and $887/oz, which for the latter is the second largest gain on record besides that in Q1 10. Lower quartile costs rose just 1.4%, to $422/oz and thus the inter-quartile range widen by 17% quarter-on-quarter to a record $283/oz in Q3 10.
The net result saw the cost curve steepen to the right, with higher cost gold production in Africa leading the charge. In South Africa the average cost of production rose 8.7%, to $803/oz, and median costs up by 2.6%, to $746/oz. However upper quartile and 9th decile costs leapt, with the former up 13.9% on the quarter, to $944/oz and the latter up 12.8%, to $1,046/oz. For the rest of Africa, upper quartile costs rose 6.1%, to $747/oz, and 9th decile costs climbed 13.7%, to $865/oz. Besides the weaker dollar (in which gold is priced), power supply disruption and a number of other issues impacted in what was otherwise a very profitable quarter for African gold miners.
The margin between the average gold price in Q3 10 and average cash cost bettered the record margin in Q2 10 by $10/oz. The gold price (London pm fix) averaged $1,227/oz in Q3 10, while the average cash cost was $585/oz, resulting in a margin of $642 for every ounce mined. This is sharply up from $558/oz in Q1 10 and $469/oz during the last run in the gold price in Q1 08. As the Latin American region is the lowest cost producer of gold the margin between the average London pm fix price in Q3 10 and average cash cost was $786/oz, which is equivalent to the average gold price in Q4 07. For lowest quartile cost producers in Latin America the realised margin was $877/oz, down from $895/oz in Q2 10, but above the nominal record gold price set in 1980. The least profitable region in Q3 10 was unsurprisingly South Africa, with the margin between the average production cost and average gold price at $424/oz. This is down $31/oz from Q2 10 but significantly up from $295/oz a year ago. The margin for 9th decile South African gold producers was $181/oz, up from just $48/oz a year ago but down from $267/oz in Q2 10.
The Gold Mine Cost Report is open-access and available directly from the VM Group at www.virtualmetals.co.uk.