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Is Newcrest Mining making money off gold at $1,276 an ounce?

Gold has been getting the cold shoulder from investors in the last fortnight, resulting in a gold prices slumping to a three-month low.

The uncertainty around impending debt ceiling negotiations has again driven down the price of gold and with it shares in Australian gold miners, which are now close to revisiting the lows seen back in June.

As an investor this may feel like a renewed buying opportunity to pick up a company with long-term reserves on the cheap. But with gold down to around US$1,276 per ounce, the first question to ask should be ‘is the company making any money?’

Newcrest Mining (ASX: NCM) is one company that could be cutting it close. For the 2013 financial year Newcrest made an underlying profit (excluding the $5 billion mountain of write-downs) of $451 million. This was achieved at an average gold price for the year of $1,550 per ounce, on all-in sustaining costs of $1,283 per ounce.

All-in sustaining costs include corporate costs, royalties and exploration and are a recent non-accounting measure of cost established to help investors and other parties’ better compare gold producers globally.

But at a gold price of US$1,276 (AU$1,339) Newcrest would only be making $56 per ounce of gold. This could get progressively worse if the Aussie dollar appreciates further, costs rise or if the gold price continues to sink.

This doesn’t take into consideration the potential impact of costs saving measures which have been taken by the company to reduce operating costs and overheads as the exact extent of the savings is unknown.

One company that could be making money is Silver Lake Resources (ASX: SLR), which operates mostly in Western Australia. According to a company presentation, Silver Lakes’ average life of mine all in sustaining cash costs range between $1,000 and $1,160 per ounce.

Foolish takeaway

After powering back to over $13 per share in August, Newcrest Mining has dropped back to $10.17 — not far from the company’s eight-year low of $9.07 earlier this year.

It is entirely likely Newcrest’s share price will continue to fluctuate with the price of gold because it hard to know exactly if the company is making any money from gold at today’s price.

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Motley Fool contributor Regan Pearson does not own shares in any company mentioned.

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