Graph: The Price of Gold & The Cash Cost of Mining Gold

This post looks at the average gold price and the average cash cost of mining gold in recent years, in the graph below. The averages are over each year.

Data Source: VM Group, Haliburton Mineral Services

From the graph, you can see that both the gold price and the cash cost of mining gold have been increasing over the years. The difference between the two has also been increasing.

What is cash cost?

The cash cost of mining or producing gold is a term commonly used by the mining industry. It is essentially the operational cash cost of the mine per unit of production. The exact definition may vary by company. It generally includes transport, refining and administration costs and royalties, but excludes taxes, depreciation / amortization (this is a non-cash cost), financing and company-level costs (e.g. head-office expenses). Hence, the cash cost is different from the production cost of the mine.

Why is cash cost important?

The cash cost is commonly used to compare across mines. Since the gold price is the same, the mines with the lower cost would generally have higher profit margins and have a greater buffer when the gold price drops. Hence, investors often look to invest in the lowest-cost producers.

Why has the average cash cost increased?

The large increase in gold prices in recent years has allowed previously economically unviable gold assets to become viable to mine. In addition, cash costs have increased due to mining of lower-grade ore (mining to a lower cut-off grade), increase in operational costs (such as fuel costs, labour costs and consumables) and general inflation. For example, due to the commodities boom in the past few years, the demand for skilled miners and managers in the mining industry has increased tremendously, leading to an increase in their wages.

For a longer history of gold price, cash cost and production cost, you can take a look at this presentation by CPM Group. The general trend is the same.

You can also find here a longer history of the gold price alone.

Data Source: VM Group / Haliburton Mineral Services; Graph: Generated by me

Graph: Largest Stock Exchanges in the World

The largest stock exchanges in the world, by total market capitalization of firms listed on the exchange, is in the chart below.

Data Source: World Federation of Exchanges

Other than the top 7 exchanges, also mentioned in an earlier post, the next tier of exchanges include the following:
viii) TMX Group - This is the group of Canadian exchanges.
ix) BM&FBOVESPA - from Brazil
x) Australian SE

In terms of average market capitalization of firms listed, other notable exchanges are the Deutsche Borse (Germany), SIX Swiss Exchange, NASDAQ OMX Nordic Exchange, Johannesburg SE and MICEX (Russia).

Data Source: World Federation of Exchanges

Many of the stock exchanges cater largely to the listing of their domestic firms. There are a few exceptions in these notable categories:

A) Major exchanges, for example: NYSE Euronext (US) [22.5% foreign firms], NASDAQ OMX [11.1%], London SE Group [20.7%], NYSE Euronext (Europe) [12.9%]

B) Regional exchanges, for example: Johannesburg SE [12.2%], Singapore Exchange [40.2%, a large proportion catering to companies from China], Mexican Exchange [73.1%]

Data Source: World Federation of Exchanges

Check out a description of the top 14 stock exchanges here.


Data Source: World Federation of Exchanges; Graphs: Generated by me

Graph: Stock Exchanges of the World

The following chart captures the market capitalization and number of listed firms on the world's stock exchanges.

Data Source: World Federation of Exchanges

From the chart, the largest or major stock exchanges in the world (as defined by total market capitalization and average market capitalization of firms listed on the exchange) are the following:

i) NYSE Euronext (US) - This is by far the largest stock exchange in the world in terms of total market capitalization (close to US$12 trillion) and average market capitalization (about US$5 billion). No other exchange comes close.
ii) NASDAQ OMX
iii) Tokyo SE Group
iv) London SE Group
v) NYSE Euronext (Europe)
vi) Shanghai SE
vii) Hong Kong Exchanges

See a subsequent post for further detailed data of the largest stock exchanges in the world.

Note that some exchanges belonging to the same company are classified separately, for example the NASDAQ exchanges (NASDAQ OMX and NASDAQ OMX Nordic Exchanges) and the NYSE Euronext Exchanges.

Data Source: World Federation of Exchanges; Graphs: Generated by me

Graph: Africa - GDP per capita

From an earlier post, there are a number of African countries with GDP per capita higher than the mean (i.e. the countries above the mean line in the graph below) that we did not look at. 

Data Source: World Bank

Zooming into these countries, we can see which of the African countries have the highest GDP per capita.

Data Source: World Bank

The economies of many of these countries are dominated by the oil & gas industry (e.g. Equatorial Guinea, Gabon, Algeria, Angola, Republic of Congo) or natural resources (e.g. Namibia). Other countries rely on tourism (e.g. Seychelles, Mauritius), while others have more diversified economies (e.g. South Africa, Tunisia, Cape Verde). Many of these are also countries that have small populations (e.g. Seychelles: 87,000; Cape Verde: 0.5m; Mauritius: 1.3m; Gabon: 1.5m) or uncertain population numbers (e.g. Equatorial Guinea: 0.7m estimated, but other estimates range up to 1.2m). 

Of course, these countries may also have high income disparities, so the poverty levels can still be quite high there.

Data Source: World Bank; Graphs: Generated by me; Country Sources: CIA – The World Factbook

Graph: Africa - GDP and Governance

This graph shows the governance score for the top 20 African countries (by GDP). The scores range from around -2.5 to 2.5, with higher values corresponding to better governance.

Data Source: World Bank

We can see that the countries with scores close to or greater than zero are South Africa, Tunisia, Ghana, Botswana, Namibia and Mauritius. Coupled with the findings from a previous post on population, GDP and GDP per capita, it seems that only South Africa appears in both charts, i.e. having high population / GDP / GDP per capita, as well as having a good governance score. Further analysis could look at these countries with good governance scores and evaluate other parameters and hence their potential for profitable investments.

Data Source: World Bank; Graph: Generated by me

Graph: Africa – Population and GDP

This graph shows the GDP and population of the African countries, as well as the GDP per capita (which is the gradient of each data point).

Data Source: World Bank

The chart might be useful in terms of thinking about which African countries are doing well economically to invest in – High GDP implies a strong economy; High Population implies a potential large domestic market; High GDP per capita implies a high spending power of the population (assuming the income gap is not too high, which may not be the case).

On these counts, South Africa, Egypt, Algeria, Nigeria, Angola and Morocco could be potential countries for investors to take another look at. Of course, there is the issue of corporate governance or political stability, which would be looked at in a subsequent post.

South Africa’s 2010 GDP (US$364bn) places it as the top African country with the highest GDP, but the 28^th country in the world. In terms of GDP per capita, South Africa (US$7,275) is ranked 66^th in the world. As a comparison, the 2010 GDP per capita for various countries are: US: US$47,199; France: US$39,640; Malaysia: US$8,373; China: US$4,428.

South Africa is not doing too badly on these counts.

Data Source: World Bank; Graph: Generated by me