Which Gold Miners Offer a Potential Upside after 3Q16 Results? PART 5 OF 14
By Annie Gilroy | Nov 29, 2016 1:07 am EST

Cost optimization

Cost discipline and lower cost assets are critical for miners (GDXJ) (GDX). They help miners navigate through lower metal price environments while improving their margins and free cash flows in times of higher metal prices.

In a commoditized business such as mining, cost efficiency differentiates miners based on command premium and outperformance over the long term.

Maintaining strength

Barrick Gold (ABX) achieved AISC (all-in sustaining costs) of $704 per ounce in 3Q16. This was an impressive fall of 8.7% YoY (year-over-year) and 10.0% over the last quarter.

On the back of the strength in its year-to-date results, Barrick Gold has reduced its cost guidance to $740–$755 per ounce from $750–$790 per ounce. This is the third time the company has improved its cost guidance. ABX aspires to achieve an AISC below $700 per ounce by 2019, which will be below the 25th percentile of the industry cost curve.

Newmont Mining (NEM) has also made significant progress on costs in 1H16. However, 3Q16 was an exception. Its AISC was $925 per ounce, which is 5% higher YoY and 6% higher quarter-over-quarter. However, it maintained its 2016 cost outlook of $870–$930 per ounce. As Newmont’s new low-cost mines come online to replace its maturing high-cost mines, its cost structure should become more favorable.

Is there weakness ahead?

Yamana Gold’s (AUY) AISC rose 14% YoY to $965 per ounce due to the impact of stronger operating currencies, higher sustaining capital expenditures, and mine development. On the heels of normalizing effects in 4Q16 and despite higher costs in 3Q16, Yamana maintained an AISC between $880–$920 per ounce.

Despite achieving cost improvements, Kinross Gold (KGC) remains a rather high-cost precious metal producer with 3Q16 AISC of $1,001. Its costs were 1.3% higher sequentially. The company expects to reach the higher end of its AISC guidance of $890–$990 per GEO (gold equivalent ounce) for 2016.

Goldcorp’s (GG) AISC for 3Q16 was $812 per ounce, which is an improvement YoY and sequentially. The company’s management had previously guided that along with production, costs should also normalize in the second half of 2016.

The return of Penasquito to normal operations and the improvement in grades should aid costs. Goldcorp has maintained its AISC guidance for 2016 at $850–$925 per ounce.