求德意志银行研报Gold Companies:Revisiting all-in cash costs

求德意志银行研报Gold Companies:Revisiting all-in cash costs

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Gold Companies:Revisiting all-in cash costs
类别：行业研究 机构：德意志银行 研究员：Brett McKay,Chris Terry,Mat Hocking 日期：2013-09-10
New guidelines drive improved company disclosure, FCF remains key

Since our initial note in March, 2013, assessing the "all-in cash costs" of goldcompanies under coverage, the World Gold Council (WGC) has releasedguidelines to more accurately represent the actual cash cost to produce anounce of gold. Two definitions are provided; the "all-in sustaining costs" (AISC)& the "all-in costs" (AIC); our previous definition largely aligned with AISC.

Application of the guidelines is not yet widespread (5/9 companies undercoverage). Using both definitions, BDR, IGO and RRL generate the best cashmargins; it is interesting to note these are all open pit miners. We believe AQG& NCM have the greatest potential for improvement in coming years.

WGC definition aims to improve the understanding of economics of Au mining

The WGC definition of AISC is (i) C1 operating costs (including mining,processing, G&A, by-product credits & inventory adjustments), (ii) royalties, (iii)sustaining capex, (iv) capitalized stripping & underground mine development,(v) near-mine exploration & evaluation and (vi) corporate costs. The keydifference from our previous definition is the inclusion of non cash inventoryadjustments. In an effort to accurately represent the true operating cash cost,our analysis continues to exclude inventory adjustments. The AISC provides ameasure of the ongoing cost of operating an asset, irrespective of growthplans. In order to determine a company’s ability to generate cash, the WGChave also defined ‘all-in costs’ which include the ASIC plus non-sustainingcapex and greenfields exploration. The inclusion of open pit cut-backs remainsan area of conjecture; we continue to include these in AISC calculations as webelieve it is largely non discretionary to ensure future production. We believethis approach more accurately represents the FCF potential of each operation.

Minimal improvement to AISC over the coming 12 months

Notwithstanding recent moves by gold companies to reduce the cost ofrunning their businesses, we calculate only a moderate (6%) YoY improvementin the AISC in FY14 using our calculation methodology. After reporting anaverage AISC of A$1,256/oz in FY13, we forecast the sector will averageA$1,183/oz in FY14. The overall reduction is driven by NCM & AQG, with MML& SLR likely to report year-on-year increases on our estimates.

Growth capex has peaked, sustaining capex to moderate

Growth capex peaked in FY13 with the completion of several large projectsincluding Cadia East, Lihir MOPU, Mt Carlton and Tucano. The sector spent anaverage A$549/oz on growth capex in FY13. We think this will reduce toA$132/oz in FY14. We expect this will deliver a 14% increase in YoY goldoutput to 4.2Moz for our 9 gold stocks. We expect sustaining capex tomoderately reduce from A$236/oz in FY13 to A$213/oz in FY14.

AISC review supports our BDR & IGO call, continues to highlight RRL

Our analysis demonstrates BDR (A$819/oz) and IGO (A$824/oz) will likelyreport the lowest AISC this year and next, supporting our bullish call on thesetwo stocks given the robust margins. The data also shows RRL continues toboast very competitive costs, with FY14 AISC of A$828/oz on our forecasts.

EVN, SLR and SBM are the highest cost producers in our view.

New guidelines drive improved company disclosure, FCF remains key Since our initial note in March, 2013, assessing the "all-in cash costs" of goldcompanies under coverage, the World Gold Council (WGC) has releasedguidelines to more accurately represent the actual cash cost to produce anounce of gold. Two definitions are provided; the "all-in sustaining costs" (AISC)& the "all-in costs" (AIC); our previous definition largely aligned with AISC. Application of the guidelines is not yet widespread (5/9 companies undercoverage). Using both definitions, BDR, IGO and RRL generate the best cashmargins; it is interesting to note these are all open pit miners. We believe AQG& NCM have the greatest potential for improvement in coming years. WGC definition aims to improve the understanding of economics of Au mining The WGC definition of AISC is (i) C1 operating costs (including mining,processing, G&A, by-product credits & inventory adjustments), (ii) royalties, (iii)sustaining capex, (iv) capitalized stripping & underground mine development,(v) near-mine exploration & evaluation and (vi) corporate costs. The keydifference from our previous definition is the inclusion of non cash inventoryadjustments. In an effort to accurately represent the true operating cash cost,our analysis continues to exclude inventory adjustments. The AISC provides ameasure of the ongoing cost of operating an asset, irrespective of growthplans. In order to determine a company’s ability to generate cash, the WGChave also defined ‘all-in costs’ which include the ASIC plus non-sustainingcapex and greenfields exploration. The inclusion of open pit cut-backs remainsan area of conjecture; we continue to include these in AISC calculations as webelieve it is largely non discretionary to ensure future production. We believethis approach more accurately represents the FCF potential of each operation. Minimal improvement to AISC over the coming 12 months Notwithstanding recent moves by gold companies to reduce the cost ofrunning their businesses, we calculate only a moderate (6%) YoY improvementin the AISC in FY14 using our calculation methodology. After reporting anaverage AISC of A$1,256/oz in FY13, we forecast the sector will averageA$1,183/oz in FY14. The overall reduction is driven by NCM & AQG, with MML& SLR likely to report year-on-year increases on our estimates. Growth capex has peaked, sustaining capex to moderate Growth capex peaked in FY13 with the completion of several large projectsincluding Cadia East, Lihir MOPU, Mt Carlton and Tucano. The sector spent anaverage A$549/oz on growth capex in FY13. We think this will reduce toA$132/oz in FY14. We expect this will deliver a 14% increase in YoY goldoutput to 4.2Moz for our 9 gold stocks. We expect sustaining capex tomoderately reduce from A$236/oz in FY13 to A$213/oz in FY14. AISC review supports our BDR & IGO call, continues to highlight RRL Our analysis demonstrates BDR (A$819/oz) and IGO (A$824/oz) will likelyreport the lowest AISC this year and next, supporting our bullish call on thesetwo stocks given the robust margins. The data also shows RRL continues toboast very competitive costs, with FY14 AISC of A$828/oz on our forecasts. EVN, SLR and SBM are the highest cost producers in our view.