The real cost of gold mining
One of the many reasons people see gold as attractive at these prices is the real cost of production for many miners is higher than the price received. When we say “real” cost we usually talk about the ASIC or All-in-Sustaining-Cost which includes costs of not just mining and producing gold now but keeping up future supply and normal real world overheads. GFMS Thomson Reuters have established their own All-in-Costs model which is even more all-encompassing as a ‘stay in business’ metric.
They have calculated the 2014 average All-in-Cost as $1314/oz even after the considerable cost cutting measures employed by desperate miners in that year. At an average received price of $1266/oz they estimate 36% of miners were running at a loss. At current prices of course this would be even higher. Maybe reflective of how hard it is getting to find and produce new mines, 5% were running at All-in-Costs of over $3000/oz – clearly unsustainable. These figures also go some way to explaining the significant drop in new discoveries as businesses succumb to the temptation for short term survival by not investing in new discoveries as we’ve reported earlier.
On any level, for anyone interested in supply and demand these numbers speak volumes for the supply side of the equation and make gold investment an even more compelling prospect.