Earlier this week, in an interview with Bloomberg Business Jake Klein, executive chariman of Australia's third largest gold miner EVOLUTION FPO (ASX: EVN), suggested that Australian gold miners have passed the low point in the gold cycle and conditions are now ideal for gold miners to start raking in the cash.
"Evolution is making a lot of money at these prices" noted Mr Klein. The change in fortune for Evolution and other ASX listed gold miners is thanks to lower costs and higher gold prices in local dollars which are driving soaring margins.
Evolution's All-In Sustaining Costs (AISC) for the most recent March quarter were $1,024 per ounce and the company received an average realised price of $1,562. Wider margins are good news for Evolution shareholders, but investors in Newcrest Mining Limited (ASX: NCM) should be even more excited.
Newcrest – a low-cost king
That's because Newcrest mining is consistently one of the lowest cost listed gold producers, leveraging economies of scale and strong copper production to keep AISCs down.
Newcrest reported Group All-In Sustaining Costs per ounce of just $946 for the three months to March, 7.6% lower than Evolution and 19% lower than Northern Star Resources Ltd (ASX: NST), the second-largest listed gold producer.
Newcrest received an average gold price of $1,556 per ounce during the quarter, so the average margin over AISCs was almost 65%, a big improvement on the 47% in the same quarter last year.
Time to bag a bargain?
It's welcome news for Newcrest investors after years of diabolical write-downs and losses. The improving conditions have helped to push Newcrest shares up 32% this year and they could rise further if conditions stay favourable.
Favourable conditions would mean a stable gold price and sustained lower Aussie dollar. This would help to catapult Newcrest's earnings and free cash in the final quarter of the 2015 financial year.
However as always if you're considering buying shares in Newcrest Mining, or any another gold miner, be sure to limit your exposure to volatile commodity prices by only making any purchase a small allocation of your total portfolio.
