Mine production increased during the first half of 2022 by nearly 2% year-on-year, returning to pre COVID-19 production levels.
The largest gains were recorded in the Americas and Asia, offsetting drops in Western Europe and Africa. On a quarterly basis, output grew the most in South Africa, which was deeply affected by restrictions imposed by the government since the beginning of the pandemic, which meant companies suspending operations or running with a reduced workforce for a long time. Turning to hedging, the total hedge book expanded by 60% year-on-year, reaching 7.8 million ounces, most of which comprised forward contracts. It’s important to note that Australian companies such as Calidus Resources and Wiluna Mining have recently extended their hedge books into longer-term contracts, with deliveries up to Q2 2025, while on average, contracts usually extend over 12 to 16 months. Due to the Australian dollar volatility during the last few years, several companies operating in the country have turned to these financial instruments, aiming to ensure operating expenditures and new projects building funds are secured for the immediate future.
WE ESTIMATE THAT AROUND 4% OF GOLD PRODUCING MINES ARE CURRENTLY UNECONOMICAL
Even though operating results for this period have been generally positive, financial results have been somewhat mixed, as a cocktail of high inflation, rising interest rates and strengthening of the dollar has had a direct impact on gold’s price performance, which has been detrimental to most gold mining companies’ share price. The Dow Jones gold mining index is a clear indicator of this statement, having dropped by 44% since its peak in April, while the gold price receded around 9% in the same timeframe. M&A activity, which during H1 2022 reached over US$11.4 billion of announced deals, the largest value in 10 years, suggests that gold mining equities are currently undervalued, favouring cash-holding companies acquiring precious reserves for their portfolio. Interestingly, some companies are expanding their footprint in other metals, such as Barrick investing in the copper business through the partnership with the Pakistani government on the Reco Dik mine, and Sibanye-Stillwater making a move into the lithium market, to name only a couple of examples.
Even though operating results for this period have been generally positive, financial results have been somewhat mixed
BEING AN ENERGY-INTENSIVE INDUSTRY, HIGH DIESEL FUEL COSTS HAVE BEEN PUTTING SIGNIFICANT PRESSURE ON MINING EXPENDITURES SINCE MID-2020
Being an energy-intensive industry, high diesel fuel costs have been putting significant pressure on mining expenditures since mid-2020. This stress has exponentially grown in 2022, as labour, energy and transport costs are skyrocketing. Financial results released so far in the current reporting season indicate that, during the second quarter, Total Cash Cost (TCC) has increased by 13% to $937/oz, while the All-In Sustaining Cost (AISC) has increased by 7% to $1,167/oz. North America and Australia represent the higher end of costs, while costs were lower than the global average in Latin America and Europe, mainly due local currency depreciation. We estimate that around 4% of gold-producing mines are currently uneconomical. Several companies have already amended their cost guidance for the year and are expecting costs to peak during the third quarter.