Home / News / Glittering margins on show for gold miners – but the share market has noticed

Most gold investors are quietly happy about the yellow metal’s 2020 rise from US$1,514.75 to US$1,728.70 – that’s a healthy 14.1 rise.

But if you’re an Australian gold miner, you’re even happier about its 2020 movement in A$, from $2,164.67 to $2,591.91 – in local currency, gold is up almost 20%.

And at that price, Australian gold miners are making very good money.

But the bad news is that most of that is well and truly baked-in to share prices, with only relatively small pockets of value left – most notably, in Resolute Mining and St Barbara.

For other gold producers to be buys, prices would need to retrace from current levels.

Australian gold production actually fell by about 12% in the March 2020 quarter from the December 2019 quarter, declining to 77 tonnes of gold from 87 tonnes in the December quarter, which was the highest quarterly output ever, according to Dr Sandra Close, a director of Melbourne-based gold mining consultants, Surbiton Associates.

The Australian dollar gold price averaged $2,410 an ounce for the March 2020 quarter, up more than 30% on the $1,831 per ounce for the March 2019 quarter. The US dollar price also rose over the same period, but only by about 21%.

In what might seem counter-intuitive for many investors, Dr Close says record Australian dollar gold prices were a significant contributing factor to the production fall.

“Many operators are now taking advantage of the extraordinary rise in Australian dollar gold prices through 2019 and early 2020,” Dr Close says. “The March quarter 2020 saw a sector-wide reduction in both grade treated and tonnes treated, compared with the previous quarter, and also there one less day in the period.”

She said that at times of prolonged high gold prices, many operations reduce the head grade of the ore being treated where possible. “This still yields good profits because of the higher prices but the amount of gold produced actually falls. It also extends the life of the mines and leaves less gold in the ground, which is positive but of course, does result in higher operating costs per ounce,” says Dr Close.

“We saw the same effect of prolonged higher prices reducing production when the Australian dollar gold price rose substantially over several years, to reach more than A$1,500 per ounce in 2011 and 2012,” Dr Close said. “Although, at that time, the Australian dollar and US dollar were around parity.”

Dr Close explains that the opposite effect occurs when gold prices fall for an extended time and mine operators reduce the amount of low grade material being treated. “This then increases ore head grades, more ounces of gold are produced and the costs per ounce decline,” she says.

The profitability being achieved can be seen in the gold miners’ margins, which are the average price achieved per ounce of gold sold, minus their All-In Sustaining Costs (AISC): this is a broad definition of a miner’s total cost of staying in business – not just the cash costs of the mining operation, but all of the add-ons, such as financing costs, royalty expenses and general corporate and administration costs.

Here is the tale of the tape for the ASX’s big gold producers:

Newcrest Mining (NCM, $31.42)

FY21 Forecast yield: 0.9%, fully franked (grossed-up, 1.4%)

Analysts’ consensus target price: $30.787 (FN Arena), $31.89 (Thomson Reuters)

Major gold producer with mines located in Australia (Cadia and Telfer), Papua New Guinea (Lihir and Wafi-Golpu) and Canada.

March 2020 quarter

Average gold price achieved of US$1,569 ($2,548) per ounce

AISC: US$827 ($1,343) per ounce

AISC margin: US$742 ($1,205) an ounce.

Evolution Mining (EVN, $6.28)

FY21 Forecast yield: 2.9%, fully franked (grossed-up, 4.1%)

Analysts’ consensus target price: $4.876 (FN Arena), $5.50 (Thomson Reuters)

In Australia, Evolution operates five fully owned mines:  Cowal in New South Wales; Cracow, Mt Carlton and Mt Rawdon in Queensland; and Mungari in Western Australia. In 2020, it also acquired the Red Lake mine, in Ontario, Canada. In addition, Evolution Mining has an economic interest (100% of the gold, 30% of the copper) in the Ernest Henry copper-gold operation, located in Queensland.

March 2020 quarter: average price of gold achieved; $2,366 an ounce

All-in Sustaining Cost (AISC*) of production: $991 an ounce

AISC Margin of gold production (copper and silver are also produced): $1,375 an ounce.

Using the average A$:US$ exchange rate for the quarter of 0.6584 US cents, group AISC equated to US$652 an ounce – ranking Evolution as one of the lowest-cost gold producers in the world.

Resolute Mining (RSG, $1.17)

FY21 Forecast yield: 1.6%, unfranked

Analysts’ consensus target price: $1.25 (FN Arena), $1.355 (Thomson Reuters)

Resolute operates mines in Mali and Senegal.

In 2020, Resolute has provided production guidance of 430,000 ounces of gold at an all-in sustaining cost (AISC) of US$980 an ounce. In the March 2020 quarter 100,763 ounces of gold were poured at an AISC of US$1,007 an ounce.

Average realised price for March quarter: US$1,407 ($2,285) an ounce

AISC: US$1,007 ($1,635) an ounce

Margin: US$400 ($650) an ounce

St Barbara (SBM, $3.24)

FY21 Forecast yield: 2.6%, fully franked (grossed-up, 3.8%)

Analysts’ consensus target price: $3.33 (FN Arena), $3.40 (Thomson Reuters)

 St Barbara owns mines in Western Australia, Papua New Guinea, and Canada.

March 2020 quarter: SBM produced 92,000 ounces of gold at an AISC of $1,405 an ounce.

Average realised gold price: $2,123 an ounce.

AISC margin: $718 an ounce

Gold Road Resources (GOR, $1.86)

FY21 Forecast yield: 0.5%, unfranked

Analysts’ consensus target price: $1.80 (FN Arena), $1.71 (Thomson Reuters)

GOR is on track to produce 250,000-285,000 ounces at Gruyere, in Western Australia, this year

March quarter – attributable gold sales totalled 31,700 ounces at an average price of $2,001 an ounce.

AISC: $1,135 per ounce attributable to Gold Road

AISC margin: $866 an ounce

Saracen Mineral Holdings (SAR, $5.22)

FY21 Forecast yield: 2.2%, unfranked

Analysts’ consensus target price: $5.08 (FN Arena), $5.00 (Thomson Reuters)

Saracen Mineral Holdings has two operations in Western Australia, Carosue Dam and Thunderbox.

March 2020 quarter

Average gold price achieved: $2,228 per ounce

AISC $1,133 an ounce

AISC margin: $1,095 an ounce

Silver Lake Resources (SLR, $2.26)

FY21 Forecast yield: nil

Analysts’ consensus target price: $2.10 (FN Arena), $2.00 (Thomson Reuters)

SLR operates the Mount Monger mine in Western Australia.

March 2020 quarter:

Average price received: $2,170 an ounce

AISC: $1,380 an ounce

Margin: $790 an ounce

Northern Star Resources (NST, $15.17)

FY21 Forecast yield: 1.6% fully franked, grossed-up 2.3%

Analysts’ consensus target price: $13.208 (FN Arena), $14.00 (Thomson Reuters)

Mines at Jundee and Kanowna Belle, in Western Australia.

March 2020 quarter:

Average price received: $2,179 an ounce

AISC: $1,590 an ounce

Margin: $589 an ounce

Alkane Resources (ALK, 99 cents)

FY21 Forecast yield: nil

Analysts’ consensus target price: 89 cents (Thomson Reuters)

Mines at Tomingley, New South Wales

March 2020 quarter

Average price achieved: $2,126 an ounce.

AISC: $1,346 an ounce.
AISC margin: $780 an ounce

Regis Resources (RRL, $5.47)

FY21 Forecast yield: 3.3% fully franked, grossed-up 4.7%

Analysts’ consensus target price: $5.157 (FN Arena), $5.28 (Thomson Reuters)

Mines at Duketon in Western Australia, and is developing the McPhillamys gold project in New South Wales, one of Australia’s largest undeveloped open pit gold projects

March 2020 quarter

Average price achieved: $2,297 an ounce.

AISC: $1,174 an ounce.
AISC margin: $1,123 an ounce

Ramelius Resources (RMS, $1.785)

FY21 Forecast yield: 0.6%, fully franked (grossed-up, 0.8%)

Analysts’ consensus target price: $1.93 (FN Arena), $1.645 (Thomson Reuters) 

Mines at Mt Magnet and Edna May, in Western Australia.

March 2020 quarter:

Average gold price received: $1,937 an ounce

AISC: $1,248 an ounce

AISC margin: $689 an ounce