All in sustaining costs and all in costs

Transcript

1 All in sustaining costs and - all - in costs Tom Whelan, Global Mining & Metals Assurance Leader Americas Mining & Metals Forum – September 2013

2 Background ► The World Gold Council (WGC) established a working group of gold members to establish a new cost disclosure framework. ► The WCG has worked closely with its member companies to develop these non - GAAP measures, which are intended to provide further transparency into the costs associated with producing gold. ► In June 2013, the WGC published a Guidance Note on “all - in sustaining costs” and “all - in costs” metrics. ► c ost reporting, introduced in 1996, has Traditionally, cash focused only on the mining and processing costs incurred. ► The new guidance focuses on costs incurred in the complete mining lifecycle from exploration to closure. Page All - in sustaining and all - 2 in costs

3 Benefits , Director Responsible Gold, WGC: Heymann Terry “These new metrics have been developed to help provide ► greater clarity and improve investor understanding. All companies involved in gold mining, including those which - are not Members of the World Gold Council, will be free to use these metrics. Individual companies have responsibility for their own reporting, but we expect that many will use these new metrics, providing further consistency for investors and other stakeholders.” 3 in costs - in sustaining and all - All Page

4 What is the need for a new framework? ► New metrics will be helpful to investors, governments, local communities and other stakeholders in understanding economics of gold mining. the ► in sustaining costs is an extension of the existing “cash - All cost” metrics and incorporates costs related to sustaining production. reflect the that in costs include all additional costs - All ► varying costs of producing gold over the lifecycle of a mine. ► gold among Inconsistency in cash cost reporting producers. 4 in costs - in sustaining and all - All Page

5 ? What is the need for a new framework contd ) ( AngloGold Ashanti SEC response: GAAP operating - “The Company believes that current non ► measures commonly used in the gold industry do not capture all of the sustaining activities incurred in order to produce gold. Similarly, they do not reflect all of the activities that would be included in the valuation of a gold company .” 5 in costs - in sustaining and all - All Page

6 Gold producers Top 10 gold producers Gold Barrick Gold Yamana Gold Kinross Goldcorp Gold Fields Newmont Mining Newcrest Eldorado Gold Mining Ashanti AngloGold Gold Polyus All of the above, and a significant volume of mid - tier gold producers, and some non - gold producers have commenced disclosure of new cost measures in their quarterly reports. Expected to be fully implemented, effective 1 January 2014. 6 All in costs - in sustaining and all - Page

7 producers: Q2 reporting Gold in - sustaining Cash costs/ All costs/ oz oz Gold Company $1,279 # 1 $606 Gold Company $686 # 2 $1,034 $960 Gold Company $775 # 3 $659 Gold Company # 4 $551 Gold Company # 5 $762 $1,071 $863 $704 Gold Company # 6 $682 $378 # 7 Gold Company 7 in costs - in sustaining and all - All Page

8 GAAP metrics Guidance note on non - in costs - in sustaining costs and all All - Excluded costs: Income taxes Working capital (except for adjustments to inventory on a sales basis) All financing charges (including capitalised interest) Costs related to business combinations, asset acquisitions and asset disposals Items needed to normalize earnings, - for example impairments on non time material current assets and one - severance charges Costs related to any of the listed - in - items used to calculate all line costs in the above table should not be excluded 8 in costs - in sustaining and all - All Page

9 Challenges ► Complexity of differentiating between sustaining and non - sustaining capex ► Non - sustaining costs are costs incurred at new operations and costs related to “major projects” at existing operations where these projects will materially increase production ► All other costs related to existing operations are considered sustaining ► Does not address discretionary nature of certain capital expenditure ► Calculation is net of by - product credits ► Only focused on the gold industry – interesting to see how the rest of the sector responds in sustaining and all - in costs 9 Page All -

10 SEC comment letters ► The SEC has sent comment letters to a number of gold producers, posing questions about this issue. ► Key areas of focus include: Categorizing the WGC (which is neither a regulatory body ► nor a standard setter) the adjustments (what’s in and what’s out) ► U nderstanding and the reconciliation to published financial statements - product ► by sales (large concern about transparency Netting product revenue is material) - especially when by 10 in costs - in sustaining and all - All Page

11 EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. refers to the global organization, and may refer to one or more, EY of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more . information about our organization, please visit ey.com Center About EY’s Global Mining & Metals With a strong but volatile outlook for the sector, the global mining and metals sector is focused on future growth through expanded production, without losing sight of operational efficiency and cost optimization. The sector is also faced with the increased challenges of changing expectations in the maintenance of its social license to operate, skills shortages, effectively executing capital projects and meeting government revenue expectations. EY’s Global Mining & Metals brings together a worldwide team of professionals to Center — a team with deep technical experience in help you succeed providing assurance, tax, transactions and advisory services to the mining and metals sector. The is where people and ideas come Center together to help mining and metals companies meet the issues of today and anticipate those of tomorrow. Ultimately it enables us to help you meet your goals and compete more effectively . © 2013 EYGM Limited. All Rights Reserved. EYG no. ER0110 ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice .

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