How Gold Mining Works and What It Means for ASX Investors

Most investors who buy ASX gold stocks have never seen a gold mine. Many could not explain how raw rock in Western Australia becomes a gold bar. That gap matters more than it might seem, because the metrics that move gold share prices, AISC, strip ratio, metallurgical recovery, are all direct outputs of physical processes most investors skip over entirely.

With Australian gold producers including Northern Star Resources, Evolution Mining, and Newmont’s Australian operations all operating in a materially higher-cost environment in 2026, understanding the mechanics behind the numbers is a genuine edge. If you can read a mine plan or interpret a processing update, you are better placed to assess whether a cost blowout is structural or temporary, and whether a resource upgrade actually de-risks a project or just adds tonnes at marginal grade.

This guide walks you through the full gold mining process, from the first drill hole to the doré bar, and at each stage shows what that process means for the numbers you actually track. The structure follows the value chain: exploration, mining method, processing, cost metrics, and the three major ASX producers currently positioned across it.

From drill core to resource: how gold exploration works

Exploration is where gold mining begins, and it is the highest-risk stage of the entire value chain. Before any drill rig arrives on site, geologists run geological surveys, geochemical sampling, and geophysical testing to identify prospective zones. These techniques narrow the search area, but they cannot confirm what sits underground. Only drilling does that.

When drill rigs extract core samples from depth, the results are expressed in grams per tonne (g/t), the standard measure of gold concentration in rock. A single high-grade intercept is promising but not yet meaningful. What matters is whether subsequent holes confirm that the mineralisation is continuous and consistent enough to define a resource.

Not every gram of gold in the ground counts. A deposit must meet a minimum cut-off grade, the lowest grade at which material is economically worth processing, before those tonnes are included in a resource estimate. Everything below that threshold is classified as waste. Cut-off grade is not fixed; it shifts with gold prices, processing costs, and the mining method applied.

The full journey from initial exploration through to resource definition can span several years before a project even progresses to a feasibility study.

What JORC classifications signal to investors

In Australia, public disclosure of resource estimates is governed by the JORC Code (Joint Ore Reserves Committee). JORC classifies resources into three tiers based on geological confidence:

• Inferred: The lowest confidence level. Based on limited drilling data with assumed but unconfirmed geological continuity. Enough to suggest the deposit has potential, but not enough to support engineering decisions.
• Indicated: Moderate confidence. Sufficient drilling to establish geological and grade continuity with reasonable assurance. Enough to underpin a preliminary feasibility study.
• Measured: The highest confidence level. Dense drilling confirms geological structure, grade distribution, and continuity. Supports detailed mine planning and financial modelling.

A JORC upgrade from inferred to indicated or measured is not a technical formality. It signals that the deposit has been drilled sufficiently to underpin engineering decisions, which is the point at which a project can attract serious development capital. The further step from mineral resource to ore reserve requires additional economic and engineering inputs confirming the material can be profitably extracted under assumed conditions.

When you see a JORC upgrade in a company announcement, read it as a probability-weighted de-risking event. The headline tonnage matters less than where that tonnage sits in the confidence hierarchy.

Open-pit vs underground: why the mining method shapes the economics

The choice between open-pit and underground mining is not a preference. It is dictated by the geometry, depth, and grade of the deposit, and the method selected shapes the cost profile for the life of the mine.

Open-pit mining involves removing large volumes of surface material to access ore in a wide, terraced excavation. It suits shallow, broad, lower-grade deposits and typically delivers higher throughput at lower operating cost per tonne. The metric that governs whether an open pit remains economic as it deepens is the strip ratio: the volume of waste rock removed per unit of ore. A rising strip ratio means you are moving more dirt to reach the same amount of gold, and unit costs climb accordingly. The Kalgoorlie Super Pit in Western Australia is one of the most recognisable open-pit gold mines in the country.

Underground mining accesses ore through tunnels and shafts driven into the earth. It suits deeper, narrower, higher-grade deposits where removing overlying waste rock in an open pit would be prohibitively expensive. Underground mines produce fewer tonnes per day but can sustain viability at higher ore grades, since only ore, not surrounding waste, needs to be hauled to surface.

Some deposits use both methods sequentially. A mine may begin as an open pit and transition to underground extraction once the pit reaches its economic depth limit. This transition point is one of the most important cost events in a mine’s life, because underground development capital hits cost reporting before the higher-grade ore arrives.

For Northern Star Resources, the balance between high-grade underground ounces at its Kalgoorlie and Yandal assets and lower-cost open-pit tonnes is a material consideration for understanding its AISC trajectory. When a producer shifts its mining mix toward more underground ounces, expect near-term AISC to rise even if the long-term grade outcome is better. The development capital arrives first; the ore quality follows.

How gold is processed: heap leach vs carbon-in-leach

Mining the ore is only half the job. The rock that comes out of the ground is not gold; it is mineralised material containing small concentrations of gold locked within a matrix of other minerals. Processing is the stage that separates the gold from everything else, and the method used depends on the ore type, grade, and mineralogy.

Heap leaching is the lower-cost option, suited to large volumes of lower-grade oxide ore. Crushed ore is stacked onto lined pads, and a dilute cyanide solution is dripped through the material from above. As the solution percolates through the heap, it dissolves the gold. The gold-bearing liquid collects at the base for further processing. Heap leaching requires less infrastructure and lower operating expenditure, but its gold recovery rates are lower than more intensive methods.

Heap leach characteristics:

• Best suited to oxide ore with accessible gold
• Lower capital intensity and operating cost
• Lower metallurgical recovery rate
• Minimal grinding infrastructure required

Carbon-in-leach (CIL) is a higher-cost, higher-recovery method suited to higher-grade or more complex ore types. The ore is finely ground into a slurry and agitated with cyanide solution in a series of tanks, while activated carbon simultaneously adsorbs the dissolved gold. After adsorption, the gold is stripped from the carbon, refined through electrowinning and smelting, and poured into doré bars for delivery to a refinery.

CIL characteristics:

• Suited to higher-grade and sulphide ore types
• Higher capital intensity and operating cost
• Stronger metallurgical recovery rate
• Requires grinding, agitation, and carbon recovery circuits

Doré bar: The impure gold-silver alloy produced at the mine site before refinery delivery. A doré bar is not pure gold; it typically requires further refining to reach market-standard purity.

The metric that connects processing to your investment analysis is metallurgical recovery rate: the percentage of gold in the ore that is successfully captured during processing. When a mine transitions from oxide ore (amenable to heap leach) to sulphide ore (typically requiring CIL or more complex treatment), recovery rates can shift, and so can unit economics. A decline in metallurgical recovery across reporting periods, particularly one linked to an ore type transition, signals a structural cost increase that will persist until the processing circuit is upgraded or the ore blend changes.

Tracking metallurgical recovery alongside AISC tells you whether a cost increase is driven by price inputs like fuel and labour, or by ore quality changes. The distinction matters, because they have very different implications for how long the cost pressure lasts.

What AISC actually measures (and what it deliberately leaves out)

All-in sustaining cost (AISC) is a non-GAAP cost metric formalised by the World Gold Council in 2013 to give investors a more comprehensive view of gold production costs than earlier metrics, which often excluded significant expenditure categories. AISC is expressed as a cost per ounce of gold sold and is the single most widely used metric for comparing gold producer profitability.

AISC includes the following six components:

1. Site cash operating costs (labour, consumables, power, maintenance)
2. Royalties and production-based taxes
3. Sustaining capital (equipment replacement, underground development, tailings lifts)
4. Sustaining exploration near existing operations
5. Reclamation accretion and amortisation at operating mines
6. Corporate general and administrative expenses allocated to operations

What AISC deliberately excludes:

• Income tax
• Financing costs (interest and related charges)
• Growth capital to expand production or extend mine life
• Acquisition and disposal costs

The exclusions matter. A company investing heavily in future production can show a lower AISC that understates its total cash outflows. If you treat AISC as a full “all-in” corporate cost number, you will miss the capital being deployed outside the metric’s boundary.

The primary profitability lens for comparing producers is the gold price minus AISC margin. A producer with a lower AISC remains profitable across a wider range of gold price environments. Global industry AISC reached approximately US$1,785/oz in Q1 2026, reflecting sector-wide inflation and higher royalties.

Note: Given that Q1 2026 industry AISC reached approximately US$1,785/oz, the cost curve has shifted upward materially. Treat the above ranges as a relative framework rather than fixed thresholds, and calibrate against current reporting-period data.

One dynamic worth understanding is the royalty-AISC feedback loop. Many royalty regimes are linked to the gold price, so when gold prices rise, royalty payments rise too, feeding directly into higher AISC. This means headline AISC may increase even without any operational deterioration. Your margin can still expand, because revenue rises faster than the royalty-driven cost increase, but the AISC line itself moves higher.

Reading AISC in company reports

When you see AISC in a quarterly report, check the components separately. Rising sustaining capital is often a sign of ageing infrastructure that needs replacement. Rising cash costs point to operational pressure from labour, energy, or consumables. The two carry different implications for how persistent the cost increase will be.

Reserve life at current production rates should be read alongside AISC. A low AISC at a mine with a short reserve life may reflect operational efficiency, but it may also reflect deferred investment in mine life extension. The number looks good today precisely because the spending that would extend the mine’s future has not yet been incurred.

Australian producers report AISC in Australian dollars per ounce for domestic reporting. When comparing across companies, confirm the currency denomination; Newmont reports in US dollars, while Evolution Mining and Northern Star report in Australian dollars.

This article is for informational purposes only and should not be considered financial advice. Investors should conduct their own research and consult with financial professionals before making investment decisions.

How Newmont, Evolution, and Northern Star compare on the cost curve

The three largest ASX-relevant gold producers sit at different points on the cost curve, and each illustrates a different combination of the mechanics this guide has covered. Placing them side by side turns AISC from an abstract metric into something you can interrogate.

Newmont is the world’s largest gold producer by output, with a globally diversified Tier-1 portfolio that includes Australian assets. Its 2025 by-product AISC came in at approximately US$1,339/oz, positioning it around the middle of the global cost curve. 2026 guidance points to approximately 4.9 million ounces sold at an AISC of US$1,680/oz. For your purposes, Newmont serves as the global benchmark: the question is whether operational improvements and synergy delivery across its Tier-1 assets can keep it competitive as the cost curve shifts upward.

Evolution Mining is an Australian-focused mid-tier producer whose cost discipline has been a defining characteristic. Its FY25 AISC of A$1,572/oz reflected tight cost control despite sector-wide inflation. FY26 guidance stepped up to A$1,640-1,760/oz, driven largely by higher royalty costs at elevated gold prices. Evolution illustrates the royalty-AISC feedback loop in practice: the company’s operations have not deteriorated, but its AISC has risen because higher gold prices push royalty payments higher. The key investor question is whether Evolution is replacing mined ounces through brownfields exploration at a pace that maintains or extends mine life.

Northern Star Resources is the high-development-phase case. Its FY26 actual AISC of A$2,698/oz and June 2026 quarter group AISC of A$2,651/oz reflect heavy underground development capital at its Kalgoorlie and Yandal assets.

Northern Star FY27 AISC guidance: A$3,050-3,450/oz. This range looks alarming in isolation, but the relevant question is whether the underground development capital embedded in that figure is building a longer, higher-margin mine life or simply sustaining current production at elevated cost.

Remember that Newmont reports in US dollars and the Australian producers report in Australian dollars. Direct comparisons require currency conversion at prevailing exchange rates.

Mapping these three producers onto the cost curve gives you a live illustration of how mining method, ore grade, development phase, and royalty exposure all interact to produce the AISC figures that appear in quarterly reports.

What the cost curve tells you before you buy a gold stock

You now have the mechanical and metric knowledge to move past headline numbers. The question is how to apply it consistently.

The gold mining value chain moves through four stages, each carrying a distinct risk profile and requiring a different set of metrics:

1. Exploration: Highest risk. Your primary metric is JORC classification upgrades (inferred to indicated to measured). The key risk is geological uncertainty; a resource announcement at the inferred level is not the same as one at measured.
2. Development: Capital intensity and funding risk dominate. Watch feasibility study assumptions, particularly assumed gold price, cut-off grade, and metallurgical recovery. Projects can be delayed, cost-overrun, or abandoned if financing conditions tighten.
3. Production: AISC and metallurgical recovery are your primary metrics. Compare margins (gold price minus AISC) across peers on a per-ounce basis. The sustaining versus growth capital split tells you whether a company is investing in future production or managing decline.
4. Closure: Rehabilitation provisions matter more than most investors realise.

The sustaining versus growth capital split deserves particular attention. A company directing most of its capital toward sustaining existing operations signals maintenance, not expansion. One allocating heavily to growth capital may show higher near-term AISC but is positioning for longer mine life and higher future output. The distinction shapes whether a margin is durable or dependent on continued reinvestment.

Higher gold prices expand margins for all producers, but disproportionately benefit lower-cost operators and those with longer reserve lives. A producer with a low published AISC but minimal reserve life and high sustaining capital requirements is not a low-risk position; the cost appears low today because production is being sustained rather than grown.

The rehabilitation liability investors often miss

Reclamation accretion and amortisation are included in AISC, so you might assume closure costs are already captured. They are, partially. The underlying provisioning assumptions vary significantly across companies, and under-provisioned closure liabilities can represent a material contingent cost that does not appear in headline AISC until the mine approaches closure.

Check the rehabilitation provisions in the balance sheet notes. If those provisions have not been updated in several reporting periods while the mine has continued operating and expanding its disturbance footprint, that is a question worth asking management about.

When you stop relying on a single metric like AISC and start reading company reports as a system of interconnected signals, exploration confidence, mining method, processing recovery, cost composition, reserve life, and rehabilitation provisioning, that is where genuine analytical edge over headline-driven market participants begins.

Past performance does not guarantee future results. Financial projections are subject to market conditions and various risk factors.