maandag 20 juli 2015

Update on AISC of Gold Miners

As a follow up of my previous post on the AISC of several prominent gold miners in 2014, here is an update for 2015.

As many precious metals investors know, the price of gold (NYSEARCA:GLD) was smashed to 5 year lows of $1085/ounce on what seems to be a flash crash (see chart from Kitco below). This crash was the result of the People's Bank of China (PBOC) announcing a less than expected increase in gold reserves. Second, a weakening Chinese stock market is sending a weak signal on commodities. On top of that, the Iran nuclear agreement last week put pressure on the oil price, which in turn has its effect on commodities and precious metals in general. So the outlook for precious metals is all but positive. But there are several anomalies that are interesting to note.

Gold premiums have been moving up at bullion dealers and in particular, silver has had a significant rise in premium, especially junk silver as the chart below shows (Chart created by Correlation Economics). Junk silver premiums are hitting highs of 40%. At the same time, the U.S. Mint halted the sale of silver eagles till August 2015. Gold sales at the U.S. Mint are very strong so far in July 2015.

Additionally, we see that someone is raiding the GLD ETF, just like in 2013. Stock at the GLD trust has hit new lows of 696 tonnes, while managed money shorts have hit new all time highs, indicating a bearish trend in precious metals (Chart created by Correlation Economics).

Investors should mitigate the risks in their gold miners portfolio and we can do that by looking at the costs. In June, 2013, the World Gold Council, an industry group, produced a detailed standard for what miners should include in all-in sustaining costs, or AISC. We will use that metric. If gold prices keep slumping below the all-in sustaining costs of gold production, the company won't be able to make a profit. That's why I summarized a table of the most recent AISC numbers of several notable gold mining companies and compared it to the 2013 numbers.

To see the analysis, go here.

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