The gold industry is stronger than ever. Here’s why.
If billionaire George Soros’ purchase of a $264 million stake in Barrick Gold Corp is any indication, gold has once again emerged as a smart investment. The industry can thank both global economic factors and more efficient processes for its resurgence this year: while its price has increased and its quality has skyrocketed, associated production costs have plummeted. Let’s take a closer look at the key driving factors behind the precious metal’s newfound success.
Price and Exchange Rates
Global and national economic shifts over the past year have played heavily into gold’s rapid rise in 2016. In the past five months alone, the price of bullion has risen an incredible 20%, as traders have grown less concerned with the rapid increase of U.S. interest rates. Miners operating outside of the United States cover their expenses with local currencies, but earn revenue in dollars. Thus, as exchange rates continue to favor the U.S. dollar, the market strength of gold has been bolstered.
Mining companies that have been able to leverage these market factors with operational improvements are performing particularly well. Lowering the cost of production, for example, has boosted industry giants Goldcorp and Yamana to the top of Fool’s Best Gold Miners list. What can other companies learn from these leaders?
Efficient Production and Low Debt
Across the industry, Bloomberg estimates that the amount a company spends to produce an ounce of gold has fallen roughly 34% since 2012. What makes Goldcorp and Yamana especially successful — and gold mining an increasingly smart investment — is their low cash cost per ounce of gold. In 2013, based on their quarterly reports, Fool estimated that Goldcorp and Yamana spent $220 and $206, respectively, per ounce; by comparison, it cost Barrick $592 per ounce (a number that has since risen to $865). Still, Barrick’s production costs remain below-average globally, and the corporation has the world’s largest proven and probable gold reserves.
What make Goldcorp and Yamana such strong players? In part, mined by-products increase the value of their mines’ ore, contributing significantly to their incredibly low per-ounce production costs; in other words, they get more bang for their buck. Moreover, by selling or writing down the value of their weaker operations, these big companies have increased their average reserve grade (the amount of gold in each metric ton of ore) by one-third — and buyers of these lower quality assets are getting them at great deals. The associated cost savings of these improvements in production have led to gold miners’ lowest net debt since 2011.
Strength Training
To continue to lower production costs and debts, mining companies must seek out savings at every level of operation. Material handling and maintenance costs can add up quickly, but Midwest Industrial Supply, Inc.’s dust control solutions keep the dust (and its associated costs) down. Midwest’s EK35® keeps gold mine operations safe by controlling PM10 and PM2.5 emissions. Meanwhile, Midwest’s solutions are EPA ETV-verified safe and effective, and are readily biodegradable, helping to maintain and even boost sustainability and profitability across the gold industry. That’s right: Midwest is as smart an investment as gold itself.
