Higher prices and lower costs significantly raise miners’ margins in Q3’20

Despite a challenging year due to the COVID-19 pandemic, gold miners are now benefiting from significantly higher margins resulting from a continued focus on operational and cost efficiencies combined with a strong gold price. 

In Q3’20 the global average All-in Sustaining Cost (AISC) was US$953/oz, a 2% drop from the previous quarter. This decline was largely a result of mines returning to normal production rates following significant disruption in Q2’20 from COVID-19 lockdowns. Countries including South Africa, Peru and Mexico implemented policies that required mines to temporarily halt operations in an attempt to control the spread of the virus. This led to a 10% y/y drop in global output in Q2’20 and also pushed costs higher during ramp down and re-start phases between closures periods. The last of the these countrywide restrictions were lifted at the end of May and most mines returned to normal production rates in Q3’20. As a result unit costs were lower and global production for the quarter dropped by a more modest 3% y/y. 

Average AISC Declined 2% q/q in Q3’20

Meanwhile the gold price hit a new record high in August and the quarterly average price increased by 29% q/q in Q3’20 to US$1,912/oz. Despite strong gold prices this year producers are currently remaining focused on constraining costs in order to maximise the value from their assets and improve returns to shareholders. As a result of these efforts, combined with easing of COVID-19 disruption and higher gold prices, gold miners’ margins have increased significantly. The average AISC margin (gold price minus AISC) was US$959/oz in Q3’20, a rise of 29% q/q and a substantial 87% y/y. With producers currently remaining focused on cost control and gold prices expected to remain strong moving forward, similar levels of profitability are likely to remain in the near term. 

Average AISC Margin in Q3’20 Increased 87% y/y