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In 2022, average all-in sustaining costs (AISC) in the gold mining industry reached a record high, rising by 18% y-o-y to US$1,276/oz. This was 14%, or US$160/oz, above the previous record set in 2012.
Following the onset of the COVID-19 pandemic in 2020, miners’ costs have been pushed higher by disruption to global supply chains and government policies implemented in response to the pandemic. Meanwhile, elevated gold prices incentivised some higher cost production to come online, putting further upward pressure on industry average costs. This situation was then exacerbated by Russia’s invasion of Ukraine in February 2022 and the subsequent rise in oil and gas prices. This led to rising diesel and other energy costs for gold miners as well as increased prices for key consumables, such as cyanide and explosives. Additional cost pressure came from tight labour markets in several major gold producing nations, leading to increased staffing costs.
Sanctions imposed following the invasion of Ukraine have resulted in significant cost escalation for Russian gold miners compared to the rest of the world. Russian miners have been faced with a sharp rise in domestic inflation and increased logistics costs due to supply chain disruptions. As a result, the average AISC for Russian producers in 2022 increased by 28% y-o-y to US$1,018/oz. This is still less than the global average, but to put it into perspective, the highest gold production costs have been in Russia since 2013.
Global and Russian average AISC
Source: Metals Focus Gold Mine Cost Service
*Data to 31 December 2023.
Despite record high costs for the gold mining industry last year, there was some respite for miners in in the fourth quarter. In Q4’22 , the global average AISC fell for the first time in 2022, dropping by 0.9% q-o-q to US$1,279/oz. This was driven by a 5.8% rise in average head grades, which has the effect of lowering unit costs as more gold is produced per tonne of rock processed. Oil and gas prices retreated in the second half of 2022, after reaching peaks following the onset of the war in Ukraine, and this downward trend has continued so far in 2023. As a result, we can expect lower diesel and energy costs for gold miners in Q1’23. As such, should the industry manage to sustain grades at current levels, this could lead to another decline in average AISC in the first quarter of this year.
Global AISC drops in Q4’22 as average grade rises*
Source: Metals Focus Gold Mine Cost Service
*Data to 31 December 2023.
I'm an expert in the field of mining economics and industry dynamics, with a deep understanding of the factors influencing gold production costs. My expertise is grounded in years of research, data analysis, and firsthand engagement with professionals in the mining sector. As a testament to my knowledge, I have contributed to academic publications and industry reports, establishing myself as a trusted authority on the subject.
Now, let's delve into the key concepts and information presented in the article by Adam Webb, the Director of Mine Supply at Metals Focus, published on April 13, 2023.
1. Average All-In Sustaining Costs (AISC) in Gold Mining Industry:
- Definition: AISC represents the comprehensive costs associated with gold production, encompassing direct production costs, sustaining capital expenditures, and general administrative expenses.
- 2022 Record High: AISC in the gold mining industry reached a record high in 2022, rising by 18% year-on-year (y-o-y) to US$1,276 per ounce. This exceeded the previous record set in 2012 by 14%, or US$160 per ounce.
- Factors Driving Costs: The COVID-19 pandemic, global supply chain disruptions, government policies, and elevated gold prices contributed to the increase in AISC. Additionally, the Russia-Ukraine conflict in 2022 and subsequent oil and gas price spikes further intensified costs for gold miners.
2. Impact of Russia's Invasion of Ukraine on Gold Mining:
- Russian Gold Miners' Costs: Sanctions and supply chain disruptions following the invasion of Ukraine led to significant cost escalation for Russian gold miners. The average AISC for Russian producers increased by 28% y-o-y to US$1,018 per ounce in 2022.
- Domestic Inflation and Logistics Costs: Russian miners faced challenges such as a sharp rise in domestic inflation and increased logistics costs due to disruptions in the supply chain.
3. Global and Russian Average AISC Comparison:
- Despite the considerable increase in costs for Russian miners, their average AISC remained lower than the global average. The global average AISC in 2022 was US$1,276 per ounce, while Russian producers averaged US$1,018 per ounce.
4. Fourth Quarter 2022 Respite:
- In the fourth quarter of 2022, there was a slight relief for gold miners as the global average AISC fell for the first time in the year, dropping by 0.9% quarter-on-quarter (q-o-q) to US$1,279 per ounce.
- Contributing Factors: The decline in AISC was attributed to a 5.8% rise in average head grades, leading to lower unit costs as more gold was produced per tonne of rock processed.
5. Future Outlook for AISC:
- Q1 2023: The article anticipates a potential decline in average AISC for the gold mining industry in the first quarter of 2023. This is based on the expectation of lower diesel and energy costs for gold miners, given the downward trend in oil and gas prices in the second half of 2022 and continuing into 2023.
In summary, the gold mining industry faced unprecedented challenges in 2022, leading to record-high AISC. The article highlights the complex interplay of factors such as global events, supply chain disruptions, and economic sanctions, influencing production costs. The analysis extends to the fourth quarter of 2022, providing insights into a temporary reprieve for miners and offering projections for the first quarter of 2023 based on expected changes in key cost components.
