NEWSLETTER
March 2016
EXPLORATION | CONSULTING | PROJECTS
Gold Cost Curves
In 2015, the total Rand cash costs per oz of gold produced of South Africa’s gold mines have risen by 16% while the
all-in sustaining costs per oz increased by 14% year-on-year. The dollar denominated total cash and all-in sustainable
costs slightly decreased, however, much of which is a consequence of the weakening Rand.
SA Historic Actual Unit Costs vs Gold Price (USD/oz)
South African (“SA”) gold mines have the
highest total cash costs (USD/oz) in the world
and are operating at 37% above the average
global total cash costs.
1,800
1,600
1,400
USD/oz
1,200
26% of SA gold mines all-in sustainable cost are
above the average 2015 gold price.
1,000
800
600
400
200
2011
2012
2013
2014
2015
Should
gold
consolidate
around
the
USD1,100/oz level, 44% of SA mines will be
above the price line on an all-in sustainable
cost level basis.
Years
Cash Cost ($/oz)
All-in Sustainable Cost ($/oz)
Gold Price ($/oz)
The aim on any operation should be to remain within the lower 50th percentile of
cost producers to ensure profitability even in market downturns. The principle of
this logic is based on economic theory that states that the commodity price is a
function of the supply-demand balance of the specific commodity. If demand
decreases due to weak market conditions and commodity prices subsequently
decline, it is likely that the highest cost producers will suspend production first,
which reduces supply and ultimately supports higher commodity prices.
Difference between cash cost and all-in sustainable cost is briefly described in
the footnote 1.
SA Historic Actual Unit Costs vs Gold Price (ZAR/kg)
500,000
450,000
400,000
ZAR/kg
350,000
300,000
250,000
200,000
150,000
100,000
50,000
2011
2012
2013
2014
2015
Years
Cash Cost (R/kg)
All-in Sustainable Cost (R/kg)
Gold Price (R/kg)
Industry cost curves are valuable tools to benchmark the operational cost
performance of an existing operation or new proposed mine project against
industry. The industry cost curve indicates the ability of the existing mines to
endure cyclical commodity prices and ensure continuous mining operations
over time. This measure of a mine’s cash margin per ounce can also be a
useful tool to use as:

Cost curves can be constructed and analysed at a company or country level to
facilitate comparison on a national, regional, or international level. South African
gold mines have the highest total cash costs in the world and are operating at
37% above the average global total cash costs (USD680/oz for 2015). Some of
the major reasons for the costs being higher are the age of the operations, thus
increasing maintenance costs on the shafts and machinery, as well as the fact
that the depth of the gold mines in South Africa is by far the deepest in the world.
Minxcon used these cost curves to compare the South African operating gold
mine’s cost curves to the average gold price for the year. The Figure to follow
shows the South African gold industry cost curve for 2015 at a mine level. From
the figure it can be seen that at the average 2015 gold price of USD1,160/oz.,
26% of the gold mines in South Africa were not profitable with all-in-costs above
the gold price. These 26% mines accounted for 23% of SA’s total ounces of
approximately 4 million produced during 2015.
Should gold consolidate around the USD1,100/oz level, the costs of the majority
of SA mines will be above the price line on an all-in sustainable cost basis.
Comparison tool
Analytical tool
o
Shareholders, Management, Industry analysts
Investment decisions
o
Investors, Banks, Equity brokers
o
Identification of high- and low-cost producing regions,
informs company decisions on where to invest
Provide a trend in costs as the mine mature
Determine commodity price in times of market oversupply
With global cash costs at USD680/oz, 38% below USD1,100/oz, 74% of SA
mines will be able to sustain operations for a short while. However, there might
be a contraction in exploration and expansion which could lead to upward
pressure on the price later on because most mines are geared only to make
nominal profits and get by. Significant production from new mines would not
realistically take hold for another five to ten years. This means that a sudden
massive gold move would be compounded by unusually weak production.
Climbing gold prices would then be much like the driver of a speeding car that
hits a concrete wall.
The cost curves are displayed overleaf per ounce recovered and per milled
tonne. Every company uses its own exchange rate when reporting costs over
periods. Average exchange rate in 2015 was 12.75 ZAR/USD.
In the case of existing SA operations with old infrastructure, constant
replacement is required and older mines will come under immense pressure at
the lower price levels.



Note 1: Cash Cost represents the cash cost incurred at each processing stage, from mining through to recoverable metal delivered to market, less net by-product credits (if any).
All-in Sustainable Cost is the sum of the cash cost, capital expenditure, indirect costs and net interest charges.
Suite 5, Coldstream Office Park, 2 Coldstream Street, Little Falls, Roodepoort, Gauteng, South Africa
+27 (11) 958 2899 | www.minxcon.co.za
NEWSLETTER
March 2016
EXPLORATION | CONSULTING | PROJECTS
1,800
800
Mponeng
Cooke
Phakisa
Masimong
Kalgold open pit
Doornkop
Kopanang
Kloof
Ergo
Joel
Tshepong
Unisel
Lily
TauTona
Beatrix
AGA Surface Operations
2015 Average
Gold Price
USD1,160/oz
Bambanani
1,000
Moab Khotsong
1,200
Barberton
Target 1
All-in Sustainable Cost per Mine (USD/oz)
1,400
Driefontein
Phoenix Surface Operations
AGA Waste Rock Dumps
1,600
Kusasalethu
South African Gold Mines Cost Curves 2015
Evander
Barbrook
South Deep
2015 South African Industry Cost Curve by Mine (all-in sustainable costs USD/oz)
600
400
200
0
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Cumulative Production (oz '000)
South African Gold Mines Cost Curves 2015
375
350
75
50
25
Driefontein
Lily
Beatrix
Barbrook
100
Kalgold open pit
Cooke
125
AGA Waste Rock Dumps
Tshepong
Unisel
Joel
Evander
150
Kloof
175
Masimong
200
Doornkop
225
Kopanang
250
Target 1
Phakisa
Kusasalethu
TauTona
275
South Deep
300
Phoenix Surface Operations
AGA Surface Operations
Ergo
All-in Sustainable Cost per Mine (USD/milled tonne)
325
Bambanani
Moab Khotsong
Barberton
400
Mponeng
2015 South African Industry Cost Curve by Mine (all-in sustainable costs USD/milled tonne)
0
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Cumulative Production ('000 oz)
For more information please contact Jaco Burger at [email protected]
Suite 5, Coldstream Office Park, 2 Coldstream Street, Little Falls, Roodepoort, Gauteng, South Africa
+27 (11) 958 2899 | www.minxcon.co.za