Gold Fields CEO warns on ‘misleading’ costs among miners

Gold Fields chief executive Nicholas Holland has suggested gold companies across the world have under-reported their actual costs, and that the industry is heading for a production shortfall.

At the Paydirt 2019 Africa Downunder conference in Perth today, Mr Holland said some all-in sustaining cost reports in the industry excluded capital and exploration costs that should have been included as per the 2013 World Gold Council guidelines.

“The amount of capital and exploration excluded in the reported AISC has been increasing over the past five years at a level equivalent to around US$30 per ounce,” he said.

“In 2018, almost half of all of the gold capital and exploration spend was classified as non-sustaining and therefore not disclosed in reported costs.”

He said the real cost issue was exacerbated by further relaxations by the WGC late last year to the definition of non-sustaining costs, effectively delivering gold companies more flexibility in how costs were allocated.

“As such, AISC will become less representative of what it really costs to produce an ounce of gold yet the reality is actual costs are higher than the industry is reporting,” Mr Holland said.

“Gold producers need to maintain discipline with how they classify growth and be more transparent as to their cost reporting protocols.”

Mr Holland also said gold miners had not been spending enough capital to sustain production, let alone grow production.

“Any growth capital people speak about is in fact largely sustaining capital,” he said.

“On the face of it, cost performance of the gold industry has been good, but this has been at the expense of sustainability of production.”

“The industry is mining more tonnes at lower grade to maintain ounces.”

The Gold Fields chief executive also questioned the merit of consolidation, with “big bang mergers” simply resulting in assets being recycled and rebadged.

“Consolidation does not address the undercapitalisation of the world’s gold industry,” he said.

Mr Holland did not give examples, but this year's merger of US-based Newmont Mining and Canada's Goldcorp created the world's largest gold miner.