Monsters of Rock: This gold boss thinks 'rampant inflation' in the mining sector may have peaked, but costs remain an issue

Gold Road boss Duncan Gibbs says rampant inflation impacting mining sector may have past a peak
But miners continue to miss or update cost guidance citing fuel, labour and explosives costs
West African sets 2023 guidance as Aeris, Panoramic, Resolute and more report December production

When will the inflation end? That’s the question on the lips of mortgage owners nervously eyeing the next round of rate rises out of the RBA, and gold miners who have seen costs ratchet up significantly over the past couple years.

Today’s quarterly releases were no different to many others, with Gold Road Resources (ASX:GOR) and Silver Lake (ASX:SLR) seeing costs rise over the past three months.

It comes after a September quarter that already ranked as the most difficult in history in terms of cost control of gold miners.

Many gold producers, like Ramelius Resources (ASX:RMS), Newcrest Mining (ASX:NCM) and Northern Star (ASX:NST) have set the expectation that higher production levels will bring costs back to guidance ranges through the second half.

Time will tell.

Gold Road, the highest profile gold producer on the reporting roundabout today has forecast a lift in all in sustaining costs for 2023 at its Gruyere mine, co-owned with South African giant Gold Fields, with the companies expecting to deliver 340,000-370,000oz at $1540-1660/oz in 2023.

That came after producing over 314,000oz at $1447/oz in 2022, though higher gold prices and the end of some very out of the money hedges will help GOR this year.

Speaking to analysts on a conference call this morning, GOR managing director Duncan Gibbs struck a hopeful tone that the worst of the “rampant inflation” impacting gold miners is behind the industry.

But he cautioned some issues would remain.

“We have allowed for some areas of inflationary creep continuing on,” Gibbs said.

“Everybody’s got transparency of course on diesel prices, They’ve come off a bit in recent months, but I think everybody’s seeing and in fact, I’ve seen commentary from other CEOs, which I think is in line with what we’re seeing where other areas such as explosives, labour and stuff are still ticking upwards.

“I think we’re probably past the peak in kind of rampant inflation in the mining sector, but everybody can see the … recent RBA numbers coming out we’re sitting in the high 7s in terms of inflation rate at the moment.”

West African to see rise in costs

Also expecting higher costs in 2023, West African Resources (ASX:WAF) has set production guidance of 210,000-230,000oz from its Sanbrado mine in Burkina Faso in 2023 at AISC of under US$1175/oz ($1670/oz).

It delivered 229,224oz in 2022 at US$1086/oz, but expects conservative underground mined grades of 7g/t this coming year against actual mined grades of 8.1g/t in 2022.

WAF says elevated fuel and explosives prices are expected to flow through from the latter half of 2022 to 2023.

Gold has been a strong performer so far in 2023 amid hopes sliding inflation numbers in the US will see the US Fed chillax when it comes to the severity and pace of rate rises.

But nothing is certain, and some analysts fear gold, currently trading at around US$1920/oz against the 2022 average of ~US$1800/oz, has run too far.

In the gold adjacent world of small cap copper, Aeris Resources (ASX:AIS) says it will make no change to full year guidance after delivering 13,100t of copper equivalent production in the December quarter, with higher output at its Tritton and Cracow copper and gold operations offsetting lower production at the newly acquired Mt Colin and Jaguar mines.

Aeris, which delivered 14,200t of CuEq in the September quarter, has maintained guidance of 57-71,000t of CuEq output in 2022-23.

The company, which bought Soul Patts’ Round Oak Minerals business at the start of July, saw AISC lift from $4.72/lb CuEq to $5.40/lb CuEq in the December quarter.

All in sustaining costs at the Cracow gold mine fell from $2558/oz to $2397/oz in the December quarter on marginally higher production and gold sales, with better production expected in the second half after development opened better access to underground stopes.

African gold miner Resolute Mining (ASX:RSG) fell after producing 91,777oz of gold at all in sustaining costs of US$1547/oz in the December quarter.

While it was the fifth straight production increase for the miner and calendar year gold output was above its 345,000oz guidance at 353,069oz, all in sustaining costs of US$1498/oz were well above CY22 guidance of US$1425/oz.

RSG expects to produce 350,000oz at US$1480/oz in 2023.

Nickel producer Panoramic Resources (ASX:PAN) fell almost 8% after revealing C1 costs would rise markedly on guidance from $7.30-8.30/lb nickel to $11.00 – $11.50/lb.