Gold Mining Costs Rise Amid Iran Conflict but Miners Maintain Strong Margins

New records were set in the gold mining industry during the first quarter of this year. The World Gold Council (WGC) reported that global average gold producer All-In Sustaining Costs (AISC) rose by 5% quarter-on-quarter and 16% year-on-year to $1,785 per ounce.

The increase in costs was driven primarily by escalating royalty payments, which surged by 24% quarter-on-quarter and 85% year-on-year. These payments now account for 12% of the average operation's cost base, up from approximately 6% in Q1'21.

Supply chain disruptions caused by the Iran conflict also contributed to increased costs, with global energy, freight, and consumable expenses rising due to the closure of the Strait of Hormuz. However, large and intermediate producers were able to mitigate these effects through hedging, inventories, and long-term procurement contracts.

Despite these cost increases, average gold prices rose by 17% quarter-on-quarter and 70% year-on-year, driving AISC margins up by 25% quarter-on-quarter and 134% year-on-year to a record $3,076 per ounce. Miners were able to maintain strict capital discipline throughout the period, directing substantial cash flows toward dividends and share buybacks.

The WGC noted that costs are expected to rise further due to ongoing supply chain disruptions and associated cost burdens.