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Who is Australia’s lowest cost gold producer?

A new measure of production costs being adopted by the gold production industry has huge value for shareholders wanting to compare different companies.

The ‘all in sustaining cost’ metric was established by the World Gold Council and combines direct production costs with overheads, capital expenditure required to sustain the mine and royalties. It was only officially launched at the end of July so is relatively new, but has already been integrated into the quarterly reporting of many companies.

For those who are interested, the full details can be found here, but critically for investors it allows a reasonable comparison of different companies’ cost bases to determine the lowest cost producer.

Lower cost producers stand better odds of being successful over the long term against the fluctuations in the price of gold. All else being equal they will operate at the highest margins and have the best buffer against changing prices.

So how do Australia’s producers measure up? Costs vary from mine to mine and some companies like Newcrest Mining (ASX: NCM) and Alacer Gold (ASX: AQG) own operations in multiple counties outside of Australia.

Company

All-in sustaining cost per ounce Q2 2013 (A$)

YTD (A$)

Regis Resources (ASX: RRL) ~760*
Newcrest Mining (ASX: NCM) $1,283
Silver Lake Resources (ASX: SLR) $1,090 $1,168
Alacer Gold (ASX: AQG) $885 $891
Evolution Mining (ASX: EVN) $1,366 $1,290

Sources: Company announcements, *Argonaut presentation

The comparison is interesting for several points. First, companies with Australia-centered mines are often subject to higher costs on the back of labour and energy costs which are exacerbated by remote project locations. Regis Resources (ASX: RRL) stands out as an exception. This could be because the gold reserves the company is targeting with open-pit mines are closer to the surface and so require less excavation to recover. Last year Regis Resources had an operating margin of almost 45%.

Secondly, Newcrest Mining comes in among the highest cost producers of those examined which is surprising given the large scale it operates on and the expected efficiencies this should achieve. This is something management has taken steps to reduce recently closing the company’s Brisbane office, reducing overheads and trimming planned capital expenditure.

Foolish takeaway

All-in costs will be an increasingly valuable metric going forward as it becomes more widely used. It is only one factor in evaluating the likely long-term success of a company, but a very important one.

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Motley Fool contributor Regan Pearson does not own shares in any companies mentioned in this article.

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