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After seemingly endless quarters focused on capital discipline and watching in horror as prices continued to fall, the best thing that could possibly happen to the gold mining industry is happening in 2016: prices are recovering. This is the single most important development this year for gold mining companies ' profitability and future spending.
In early July, the spot price hit US$1,370/oz, a more than two-year high, on the heels of Great Britain's Brexit vote. While the price has corrected downward since then, gold remains well over 20% higher than where it started the year and many analysts believe it is set to consolidate at higher prices.
The past few years of cost cutting will facilitate capture of improved cash flow as prices improve, especially for companies that have also worked to reduce debt, such as Barrick Gold, one of Latin America's biggest gold producers. Gold mining companies large and small have been retooling to ensure survival at prices of US$1,000-1,100/oz. Rising prices mean they will be accumulating a lot more cash than a year ago. The opportunity for suppliers and contractors is in the possibility of a widespread return to capital spending, which will not be immediate but is likely to gain traction as higher gold prices solidify.
As outlined below (Latin American gold miners' costs fall), gold mining companies in Latin America are still working on reducing costs and in particular all-in sustaining costs (AISCs), or spending aimed at sustaining production over time, including exploration, mine development and maintenance. While the focus on efficiency and value will remain, miners are very aware that to stay in business they must invest in new capacity and higher gold prices will support investment decisions.
There are already some indications that companies are ready to consider capital projects again: Looking at Latin America's three biggest gold mining companies, Goldcorp is still trimming its workforce but is advancing projects including a pyrites plant and Camino Rojo in Mexico; Barrick Gold is venturing to evaluate the Lagunas Norte expansion; and Yamana is picking up the pace at its Cerro Moro project in Argentina - and picked up a new mine in Brazil this year.
This report will provide insight into the issues ruling the gold mining companies - prices, spending, operating costs, production, earnings - and a look at the activities of the region's top gold producers.