How Rising Labor Costs Are Impacting World’s Largest Gold Miner

Something quite interesting has taken place at the world’s largest gold miner over the past few years.  While certain mining costs, like energy, have declined since the price of oil plummeted from over $100 a barrel in 2013 to an average $43 in 2016, quite the opposite has taken place with the cost of labor.

Barrick Gold, the world’s largest gold miner, is paying a great deal more in labor to produce an ounce of the precious shiny yellow metal than it did just five years ago.  How much more?  Well, it turns out to be quite a lot.

For example, Barrick Gold only paid $1.5 billion in labor costs to produce 7.8 million ounces (Moz) of gold in 2010.  However, this increased significantly in 2015, as Barrick paid $1.86 billion in annual payroll to produce 6.1 Moz of gold.  While the labor cost only increased $360 million in 2015 versus 2010, total gold production declined by 1.7 Moz.

I took the annual payroll data from Barrick Gold’s Sustainability Reports, shown in the table below:

As we can see in the chart, Barrick’s annual payroll has continued to decline since 2012.  However, so has its production.  So, if we divide Barrick’s annual payroll by how many ounces of gold the company produced, we end up with a “Labor Cost per ounce.”

Taking the data from Barrick Gold’s Sustainability Reports since 2009, we can plainly see how much labor costs have increased per ounce of gold produced:

The DOLLAR image at the bottom of the bars represents the labor cost per ounce, and the GOLD color is the annual price of gold.  In 2010, Barrick paid $192 in labor costs per ounce of gold compared to $304 an ounce in 2015.  Thus, labor costs per ounce of gold have increased 58% in just five years.

Again, we have to remember, Barrick produced 7.8 Moz of gold in 2010 versus the 6.1 Moz in 2015.  So, overall rising labor costs on top of falling economies of scale have put more pressure on Barrick’s bottom line.

What is very interesting about the data in the chart above, for each ounce of gold produced in 2010 (valued at $1,225), it only took $192 of labor costs.  However, this increased significantly to $304 for each gold ounce in 2015 (valued at $1,160).  Which means, labor costs were only 15.7% of the gold price in 2010 compared to 26.2% in 2015. 

Here we can see that more than 25% of the cost to produce gold at Barrick is due to its labor costs alone.  It will be interesting to see what this figure will be when Barrick publishes its 2016 Sustainability Report later this year.  I would imagine Barrick has continued to lower its overall annual payroll amount, because its gold production declined to 5.5 Moz in 2016 versus 6.1 Moz in 2015.  But, the labor cost per ounce will likely increase in 2016.

Regardless, the top gold miners have been hurt considerably due to manipulation of the gold price via the Fed and Central Bank market intervention.  I will be publishing a very interesting article next week on how the gold market has been controlled and manipulated since Nixon dropped the Gold-Dollar peg in 1971.

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8 Comments on "How Rising Labor Costs Are Impacting World’s Largest Gold Miner"

  1. Good stuff !!!

  2. . I will be publishing a very interesting article next week on how the gold market has been controlled and manipulated since Nixon dropped the Gold-Dollar peg in 1971.

    An interesting statement Steve. My gut feeling and my charts have told me this for some time now, so your report should be interesting to say the least. Being able to look back into the past with the technology now available; it makes one wonder how long the manipulation has been going on for.

    And yes I think it goes back to 1971 at least. When you sit down and think about it, it just makes sense doesn’t it?

  3. Ohh..oh. The supply of gold is being negatively affected. That doesn’t sound intentional. I was going to paint a picture of extreme negativity, but I’m sure we can all imagine what would happen if you one day woke up and couldn’t buy gold with your currency., and your central bank prints excessively.

  4. Let’s see, cost of production goes up – quantity of product goes down – demand is up and down within a relatively tight range and at some point the fiat currencies ( an IOU for a promissory note ) begin their swan dive – demand for wealth sanctuary Gold/silver/land and the price goes through the roof.

    I think I’ll continue to buy the metals.

  5. GATA has quite a body of evidence on gold manipulation. FED statements, retired official, court cases, traders emails, etc

  6. Worth mentioning with these things is that as there is a long term bull market in a given “commodity”, it becomes economic to get it out of the ground and invest in the infrastructure and expand the business administration required to do so

    This means the extraction cost per ounce goes up, eg to just under US$1000 about now from under $300 at the start of the bull run in early 2000’s

    Obviously the price of Gold has contracted but the administration costs are still there to a point along with infrastructure cost and perhaps most importantly the debt repayments for the debt that some mega producers took out to finance the infrastructure expansion, so like Oil producers they often have to keep mining and using up their reserve selling Gold at reduced prices to cover costs (meaning it ain’t there when the price goes back up…)

  7. Steve, do you know what percentage of these salaries are compensation for (upper) management? My guess is, the guys in the pits doing the hard labour did not earn that much more, though I may be wrong on guessing that.

    • CHX13,

      No… but from what I have read in other reports, wages continue to increase in the gold mining industry’s company labor or contracted labor.

      steve

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