Page 52 - Introduction to investing in Gold

The Beginner's Guide to Investing in Gold
The objective of AISC and All-In Costs (AIC) metrics is to provide key stakeholders (i.e., management, shareholders, governments, local communities, etc.) with comparable metrics that reflect, as closely as possible, the full cost of producing and selling the commodity. These costs are fully and transparently reconcilable back to amounts reported under Generally Accepted Accounting Principles (GAAP) as published by the Financial Accounting Standards Board (FASB, also referred to as US GAAP) or the International Accounting Standards Board (IASB, also referred to as IFRS). AISC and AIC are non-GAAP metrics subject to regulatory and disclosure requirements of the various jurisdictions applicable to the reporting company.
It's complicated, but if you want to take a serious look at the sector, it’s important that you understand it.
Let’s continue with this example.
Say the gold price increases by 20% to $2,040 per ounce. Although costs may creep up a bit, at least over the short term, they’re unlikely to move anything like the pace of the gold price. In this example, let’s assume they increase 10% (to $1,320 per ounce), so if the gold price is $2,040, that’s a profit of $720 per ounce.
As you can see, in this example, the gold price has gone up by 20%, but the profit per ounce has increased from $500 to $720 – that’s a 44% uplift.
In a nutshell – the miner is giving you leverage.
This is great when the gold price is going up but very bad if it goes down. And, more importantly, stays down.
Clearly, you need to be bullish about gold prices, which I am.
Having said that, I like to get involved with several producers, so I’m not over-exposed to one particular mine. You can get problems with a number of different aspects of production, such as machinery, rock falls, and the workforce. This is one reason why I like to be diversified.
47