However, for some producers this cost reduction has been partially driven by local-currency depreciation against the dollar and a sharp rebound, particularly in the Russian ruble, is a risk for some companies.

Gold has hit five-year lows in the last couple of weeks, so the flexibility companies have to cope with persistent weaker prices is crucial. This includes whether companies are able to reduce production costs and how flexible they are in revising capex programmes or postponing projects. Many companies have made good progress in cutting costs since the sharp drop in gold prices in the first half of 2013.

Russian gold companies have reported some of the biggest cost improvements. Russian major Polyus Gold’s (BBB-/Negative) reported total cash costs (TCC) for 2014 were down by 17% to US$585/oz. Nordgold (BB-/Stable) whose Russian operations account for around a third of production, reduced TCC by 20% in 2014 to US$675/oz.

North American companies Goldcorp (BBB/Stable), Kinross Gold (BBB-/Stable), and Yamana Gold (BBB-/Stable) have also benefitted from currency devaluation in their producing countries. But the impact has been mitigated by higher prices for supplies and raw materials in some countries. Peru’s largest precious metals miner, Compania de Minas Buenaventura (BBB/Stable), has low production costs (in the first quartile of the cost curve), which has improved following an efficiency drive and decreased opex combined with the sale of higher cost units. The company’s TCC for gold was US$575/oz in 2014.

In terms of capex flexibility, among North American miners only Yamana has major expansion spending planned, with construction at its low cost Cerro Moro project expected to start in late 2015.

Goldcorp has recently completed some (and is close to completing a vast majority) of its current expansion projects and will benefit from increased production in the near future, while Kinross has curtailed expansion spending in light of the unfavourable market environment, preserving cash flow to strengthen its balance sheet. Polyus Gold has room to maintain strong production in the medium term by improving its operating mines, while development of its Natalka project has been delayed.