Cost curve position remains an important value differentiator for mining companies, especially during periods of low metal prices. For precious metal companies, the standard (non-GAAP) cost reporting methodology are the World Gold Council (WGC) guidelines first published in 2013 and consist of three components: Adjusted Operating Costs, All-in Sustaining Costs (AISC), and All-in Costs (AIC).
While there is no formal guidance from regulatory bodies, such as the SEC, etc., most precious metal mining companies do provide some version of AISC and AIC metrics in their public disclosure. AISC is also quoted extensively for project valuations within NI 43-101 technical reports, but often with a number of discrepancies that occur. The discrepancies include exclusion of smelter/refinery TC/RC costs; uncertain definitions of by-product vs. co-product treatment; sustaining capital; General and Administrative costs; and exploration/study costs.
While it has been long recognized that the WGC guidelines currently exclude income taxes, working capital, and all financing costs, this presentation advocates the inclusion of these items into a Modified AIC structure. The presentation also proposes a methodology to capture the costs of streaming and royalty financing, while examining debt finance costs and the issues of dilution with equity financing. The main benefit of this Modified AIC makes it easier to determine the health of a company or project – either for a quick margin analysis per oz. of metal sold or if adding up positive cash transactions and subtracting AIC to determine how much cash the company has generated for a certain time period as “Distributable Cash Flow”.
