Maintaining low-cost operations will continue to be one of the biggest challenges for gold miners throughout 2014. Even at the current gold price of US$1,338 ($1,475) per ounce, we have seen gold miners struggling with low margins and needing to raise capital from investors.
Low cost producers stand the best chance of being a profitable investment for shareholders with the lowest risk. Three of the lowest cost producers for the most recent December quarter were Newcrest Mining Limited (ASX: NCM), Evolution Mining (ASX: EVO) and Northern Star Resources Ltd (ASX: NST).
Newcrest Mining Limited
Newcrest Mining took out the crown for the lowest cost producer, with an all-in sustaining cost (AISC) of just $921 per ounce. This was an exceptional result, proving that rather than being big and slow, the significant efficiencies and economies of scale that were able to be leveraged from the company's size could be of great value to investors.
In the same quarter Newcrest increased production by 6% over the September quarter and is on track to grow full year production by up to 9% to 2.3 million ounces.
Evolution Mining
With an AISC of $1,049 per ounce, Evolution Mining was another standout low-cost producer. Evolution is a fraction of the size of Newcrest, with full year 2014 production guidance of between 400,000 and 450,000 ounces, but is nimble and retains a strong focus on keeping costs down.
Evolution made good headway in increasing cash flows in the December quarter under tough operating conditions and is delivering positive results for shareholders.
Northern Star Resources
Northern Star Resources rounds out the top low-cost gold producers with a December AISC of $1,156 per ounce. The company is a smart operator, stock piling cash and taking advantage of distressed mine sellers to acquire new gold mines.
Shares in Northern Star have climbed 40% so far this year, but the company could be a long-term success if it can continue to operate at low costs while increasing production.
Foolish takeaway
Despite the recovery in gold price so far in 2014, low sustaining costs remain a huge focus.
Investors looking to add gold producers to their portfolio should view costs as one important piece of the puzzle, alongside low debt and good long-term growth prospects. This reduces the risk of share price falls should further volatility strike.
