Gold prices may be high, but that doesn’t automatically mean gold miners are enjoying enormous profit margins. Barrick is a good example of why.
In the second quarter, Barrick reported that its cost of gold sold rose 20% year over year, while its all-in sustaining costs (AISC) increased 11%.
A few things stand out to me:
- Higher gold prices are only one side of the equation. Labor, energy, equipment and other operating costs can rise at the same time.
- AISC matters. It gives us a much better picture of what it actually costs to keep producing gold than simply looking at the market price.
- Not every miner benefits equally from a gold bull market. Two companies can sell gold at almost the same price while having very different margins.
This is why I never like looking at gold miners through the gold price alone. Gold can be making new highs while rising costs quietly eat into the additional margin.
For investors in mining stocks, the question isn’t simply “How high is gold?” It’s also “How much does it cost this company to get an ounce of gold out of the ground?”
And sometimes, that second number tells the more interesting story.
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