Eighteen months on from the first round of collapsing gold prices, Australia's gold miners are on a new low-cost war path to preserve investor returns.
For the most recent September quarter Newcrest Mining Limited (ASX: NCM), Northern Star Resources Limited (ASX: NST) and Evolution Mining (EVOLUTION FPO) (ASX: EVN) were the top three low cost gold producers. But does that make Newcrest Mining the best gold investment for new money? Perhaps.
The table below gives us an extremely clear picture of just why Newcrest Mining is the lowest cost miner with the correlation between production volume and cost. This is classic economies of scale where the miners with higher production volumes also come up trumps with lower costs.
| Company | Rank | Production Sep Qtr 2014 (oz) | AISC Sep Qtr 2014 |
| Newcrest Mining Limited (ASX: NCM) | 1 | 561,731 | $864 |
| Northern Star Resources Limited (ASX: NST) | 2 | 147,884 | $1,043 |
| Evolution Mining Limited (ASX: EVN) | 3 | 107,165 | $1,083 |
| Kingsgate Consolidated Limited (ASX: KCN) | 4 | 53,557 | $1,252¹ |
| Beadell Resources Limited (ASX: BDR) | 5 | 33,793 | $1,307¹ |
| Silver Lake Resources Limited (ASX: SLR) |
6 |
29,531 | $1,383² |
Source: Company quarterly updates.
Notes: ¹reported in USD, converted to AUD; ²SLR Mount Monger Operations AISC only – accounts for 94.1% of production
On this basis Newcrest Mining, which earns around 85% of revenues from gold production, is the clear standout for investors. In addition to having an All-In Sustaining Cost (AISC) of just $864 for the September quarter, the company received an average gold price of $1,393 per ounce – a margin of 61% and well ahead of runner up Northern Star Resources at 34%.
It is also likely that Newcrest's cost advantage is sustainable. Newcrest has the largest pool of gold reserves of all the listed miners which should allow the company to continue its high production over the medium term.
However, one of Newcrest's biggest risks, especially compared to other listed gold miners, is its significant debt burden.
The large pile of debt and sizeable asset write-downs have pushed Newcrest's gearing levels up from just 4% in 2011 to 33.8% as at 30 June 2014. More debt increases the costs of financing, which is excluded from the World Gold Council's calculation of AISC.
Compared to Newcrest, runner up gold miner Northern Star Resources has very limited debt and has the next lowest AISC. Though, as the price of gold keeps falling that margin is slowly eroding.
