There is a lot of emphasis currently on all in sustaining cost (AISC) profiles, a cost metric put forward by the World Gold Council. While I think that this metric is suitable for a relative measure for a comparison of assets, a better measure of the cost of an operation is looking at the EBITDA (earnings before interest, tax and depreciation) margin.<\/p>\n
This is the proportion of EBITDA over gross revenue expressed as a percent. With this metric, we do not have to concern ourselves about by-product versus co-product accounting or gold equivalent ounces or any other cryptic accounting measure. I would also feel more confident if the financial statements were audited by an independent firm. <\/p>\n
It is critical that one check the company\u2019s balance sheet. Major gold producers such as Barrick Gold are divesting assets to lower their debt burden. A company\u2019s ability to pay back its debt is measured by a ratio of Net debt (debt minus cash) to EBITDA (earnings before interest, tax and depreciation). Barrick Gold has a Net debt to EBITDA ratio of ~2.7x while a ratio of over 4.0 is considered very risky. If all a company\u2019s free cash flow goes to alleviating a debt burden, there is not much left over for the shareholders. So I prefer companies with low Net debt to EBITDA ratios.<\/p>\n
http:\/\/www.kitco.com\/commentaries\/2016-01-08\/Going-Where-Reward-Exceeds-Risk.html<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" There is a lot of emphasis currently on all in sustaining cost (AISC) profiles, a cost metric put forward by the World Gold Council. While I think that this metric is suitable for a relative measure for a comparison of … Continue reading