AISC Explained: What All-In Sustaining Cost Includes, Excludes, and Hides

Summary box

• AISC is a non-GAAP metric. It is not defined by any accounting standard, and no regulator audits it.
• The reference definition is the World Gold Council's Guidance Note on Non-GAAP Metrics, first issued in 2013 and updated in 2018.
• The line between sustaining and non-sustaining capital turns on a 10% materiality test: a project must be expected to lift annual or life-of-mine production, NPV, or reserves by at least 10% to be excluded from AISC.
• AISC excludes income taxes, financing costs, working-capital movements (other than inventory on a sales basis), business-combination costs, and impairments.
• Because classification requires management judgment, AISC is comparable between two companies only after you read both reconciliations. Treating the headline number as standardised is a category error.

What AISC was invented to fix

Before 2013, gold miners reported "cash cost" — roughly, the cost of getting an ounce out of the ground and into a doré bar. It was a useful number that became a misleading one, because it omitted almost everything that keeps a mine alive: sustaining capital, mine-site exploration, reclamation accretion, corporate overhead.

A company could report a $650/oz cash cost, spend $300/oz keeping the plant running, and still describe itself as low-cost. The World Gold Council introduced all-in sustaining cost to close that gap. The WGC's guidance page states that the metrics "are intended to provide further transparency into the costs associated with producing gold," and that "all companies involved in gold-mining are encouraged to use these metrics."

Note the word encouraged. Adoption is voluntary. That single fact explains most of what follows.

What sits inside AISC

Broadly, AISC starts from cost of sales and adds back the recurring costs required to sustain current production at current levels:

• On-site mining, processing and site administration costs
• Royalties and production taxes
• Realised hedging gains and losses on operating costs
• By-product and co-product credits (as a reduction to cost)
• Corporate general and administrative costs, including share-based remuneration
• Sustaining capital expenditure
• Sustaining exploration and study costs
• Reclamation and remediation accretion and amortisation
• Lease payments — the principal and financing components, per the 2018 update reflecting ASC 842 and IFRS 16

On corporate G&A, the WGC guidance is explicit: costs incurred "in supporting a company's corporate structure and fulfilling its obligations to operate as a public company" should be included, because they are "generally non-discretionary" and therefore "a necessary cost to sustain current operations."

What sits outside AISC

The exclusions are where the metric gets interesting:

• Income taxes
• Financing charges and interest expense
• Working-capital movements, except adjustments to inventory on a sales basis
• Costs related to business combinations, acquisitions and disposals
• Impairment charges on non-current assets and one-time material severance
• Non-sustaining capital, exploration and study costs
• Streaming, financing, structured production and marketing arrangements, where the company has no direct ownership interest in the underlying assets

The last point is easy to miss and matters for royalty and streaming exposure. Where a company buys a stream of gold through an upfront payment and later sells the metal received, "this gold should not form part of Company A's gold sales for the purposes of AISC or AIC."

The 10% rule: the most consequential sentence in the guidance

Everything hinges on whether a given dollar of capital is sustaining or non-sustaining. Non-sustaining capital sits outside AISC, so classifying more capital as non-sustaining mechanically lowers the reported cost per ounce.

The WGC guidance sets the boundary with a materiality threshold. Non-sustaining costs are:

"primarily those costs incurred at 'new operations' and costs related to 'major projects at existing operations' where these projects will materially benefit the operation. A material benefit to an existing operation is considered to be at least a 10% increase in annual or life of mine production, net present value, or reserves compared to the remaining life of mine of the operation."

So a "major project at an existing operation" must be expected to deliver at least a 10% increase in one of:

• annual or life-of-mine production from current levels; or
• NPV, versus remaining life-of-mine NPV before the project; or
• reserves, versus the reserve report before the project.

There is a second condition: the project "would not generate incremental net cash inflows within 12 months of the project commencing."

The guidance also carves out the routine cases. Production-phase open-pit capitalised stripping and underground mine development are "generally sustaining capital," even where they might otherwise meet the major-project test. Extensions to existing underground footprints and pushbacks of existing pits are sustaining unless the development is expected to take at least 12 months and the ore production phase is expected to exceed five years.

Initial development of a new open pit or underground mine, including related infrastructure, is non-sustaining.

Why identical AISC numbers are not identical

Four structural reasons, all of them legitimate under the guidance:

1. Classification is a judgment call. The WGC states plainly that "the determination of classification as sustaining or non-sustaining requires judgment by a company's management," and that facts may change between when a project is contemplated and when it completes. Two companies can reasonably classify similar spend differently.

2. IFRS and US GAAP treat stripping differently. Companies reporting under US GAAP are not permitted to capitalise open-pit stripping costs during the production phase, under EITF 04-6. IFRS reporters may. The same mine, the same pit, the same shovels — different AISC, purely from the accounting regime. US GAAP reporters also tend to show higher net-realisable-value inventory write-downs during stripping campaigns, because all stripping cost flows through inventory.

3. Consolidated versus attributable. AISC can be reported on a consolidated basis or an attributable basis, reflecting ownership percentages in non-wholly-owned entities. The WGC asks companies to disclose which they use and to match the basis of their sales reporting, but the two bases are not comparable to each other.

4. Co-product versus by-product accounting. Secondary metals can be credited against cost or reported as revenue. Both are permitted, both reduce AISC, and the guidance acknowledges directly that regulatory differences here "can result in inconsistencies when comparing metrics between companies."

The reconciliation is the real disclosure

The WGC guidance asks for a numerical reconciliation between GAAP or IFRS financial statement line items and the costs included in AISC. That reconciliation, not the headline, is where the analysis lives.

Companies are not required to state that they follow the WGC guidance, and some cannot for regulatory reasons. But, per the guidance, all companies "should provide adequate disclosure and reconciliation that would allow the user of the AISC and AIC metrics to conclude whether the information is prepared in accordance with the WGC Guidance Note."

If you cannot rebuild the number from the reconciliation, you do not have a number. You have a marketing claim.

A practical checklist

When you pick up an AISC figure, verify:

1. Basis. Consolidated or attributable? Company-level or site-level? Site-level AISC without a company-level figure omits corporate G&A and flatters the result.
2. Reconciliation. Is there a numerical bridge to cost of sales? Are the excluded items itemised?
3. Sustaining split. What proportion of total capex was classified non-sustaining, and which specific projects? The WGC asks companies to "publicly disclose the 'new operations' and 'major projects at existing operations' that are considered non-sustaining."
4. Accounting regime. IFRS or US GAAP, and is there a stripping campaign in the period?
5. By-product treatment. How were secondary metals credited, and what price was assumed? A copper-gold mine's gold AISC is a function of the copper price.
6. Trend versus guidance. Is reported AISC tracking the company's own guidance range, and has the guidance been revised mid-year?
7. Grade and throughput. AISC is a per-ounce metric. Falling grade raises it mechanically even when nothing operationally has changed. Read cost per tonne milled alongside it.

AISC is a margin metric, not a cost metric

The reason AISC gets quoted is the implied margin: spot price minus AISC. That framing is useful and incomplete. AISC excludes taxes and financing, so the gap between AISC margin and free cash flow can be very wide for a leveraged miner in a high-tax jurisdiction.

For capital-allocation questions, all-in cost (AIC) — which adds non-sustaining capital and growth exploration — is the more honest denominator. The WGC "encourages companies to disclose both." Fewer do than should.

How Mining Terminal handles cost metrics

Mining Terminal extracts AISC, cash cost and production metrics from source filings with the reporting basis and period attached, so a comparison can be filtered to like-for-like disclosures rather than blended across incompatible bases. Where a filing reports AISC without a reconciliation, that is recorded as an attribute of the disclosure, not smoothed over.

Currency is carried as disclosed. Where a peer set spans multiple reporting currencies, aggregate figures are labelled as mixed rather than silently converted at a rate the filing never used.

To compare cost curves across a peer set or a commodity, get in touch or ask Nara.

Sources

• World Gold Council, All-in sustaining costs and all-in costs guidance and FAQs — gold.org
• World Gold Council, Guidance Note on Non-GAAP Metrics – All-In Sustaining Costs and All-In Costs, updated 2018 — PDF
• World Gold Council gold cost-curve data — AISC gold

This article is educational and is not investment advice. Mining Terminal is a data platform, not a broker, dealer or investment adviser.