- Rather than use depreciation, an income-statement item that reflects the historical cost of a miner’s assets for the period, it pulls capital expenditures from the cash-flow statement. It allows a miner’s management to determine what part of the period’s capital spending is devoted to “sustaining” its existing operations, versus what is instead spent on “growth.”“Because the companies have discretion on what they are going to spend in any particular year, and also what they are going to call growth capital versus sustaining capital, that measurement is very easy to manipulate,” says Adam Graf of Cowen & Co.
- There’s also that more innocuous problem that Mr. Jeannes identified. Mr. Graf gives an example of a miner that needs to build a new facility in order to maintain operations at one of its sites.But the high costs may exist only for a single year, Mr. Graf said, and the company could be rewarded with more production at a reduced future cost.
- as gold prices have decreased, miners have responded by cutting sustaining capex, research and development, and exploration costs. “Let’s pay attention to how the industry is achieving these cost cuts, because it matters if they’re coming on the sustaining side.”
- “all-inclusive sustaining cost,” as well as the even more expansive “all-inclusive costs,” don’t actually include other expenses a mining company encounters, such as corporate income taxes and debt servicing, a particular problem in today’s highly leveraged mining world.
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Monday, 22 September 2014
All In Sustaining Costs AISC - Discussions at Globe & Mail
Article HERE - highlights below