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Steve Herschbach

True Cost To Mine Gold - Companies Under Pressure

30 posts in this topic

"A survey by of 49 publicly traded companies accounting for 60% of world gold output, which was conducted by New Jersey’s John Tumazos Very Independent Research, estimates that one-third of gold mines have pretax costs of $1,250 to $1,750 per ounce."

 

Rest of the story at Mineweb:

 

http://www.mineweb.com/mineweb/content/en/mineweb-gold-analysis?oid=186433&sn=Detail

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Hidden Valley Mine for example in Papua New Guinea reported Production Costs of $1,790.00 / Ounce last quarter and Logistics aren't that bad as there has been a number of large Mining Operations there for well over 20 + years. Another in the Solomon Islands @ $1,663.00 / Ounce. There is a lot of talk already stemming from last week's price plunge that Exploration Budgets are getting the chop big time.

 

Other more expensive methods of Mining, particularly Mechanised Underground Mining, will also come under scrutiny as Companies try and cut costs. The other thing we are also seeing now is the Sale of some of the marginal Mines. Barrick are selling 3 of their Mines in Western Australia for those of you with some spare Cash.

 

Costs are so far out of control that it is bordering on the ridiculous. Barge Freight is up again this Season. Labour is worse. I saw an advertisement in the paper recently from somebody who said he can fix Hydraulics. I thought the Service might some day be useful. He quoted me almost $1,000.00 / Day + Meals + Hotel + Airfares + Transportation + Satellite Communications / Internet + Private Sleeping & Bathroom arrangements etc. etc. I wrote back and asked him, in addition to his list, did he have any special Dietary or Bedding requirements ? For example, did he like his Quail Roasted or Poached ? And the Pillow, was that Super-Soft Down Fill or would standard 100 Micron Duck Feathers be O.K. ? Reminds me of a time when the Union called a Strike to shut down the entire Mine because the Pie Warmer wasn't working and so no-body could Toast their Sandwiches.         

 

The problem we have as small Ma & Pa Operations is that the big, Publicly-Listed Multi-Nationals with deep pockets have no problem paying whatever it takes so the Supply / Demand equation is leaning way too heavily towards too much demand which of course equals rising costs. If and when that starts to balance itself out again, perhaps we might then start to see some of the cost and labour pressures stabilise a bit and hopefully come down to a more realistic level. Until then it looks like we have just to grin and bear it or get the Kids more involved.                        

Geowizard likes this

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I will say, the mining industry has been great to my family and i. The benefits were awsome UNTIL this new health reform crap is going into play. Awsome pay and benefits though.

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I'm like a squirrel though. Even if the price of nuts goes down, I still keep collecting nuts

 

Good point. If you are just doing it just for fun, then you keep on collecting nuts.

 

If it is a business however, as the price keeps going down eventually its cheaper to buy your nuts at the store then work to find them yourself.

Ronald C likes this

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Well, if the problems of the mining companies were grave at $1200+ dollars per ounce, they are now even more serious with gold now holding at around $1100 per ounce.

The Canadian Company that paid my Minimum Royalties last year on
the property up by Gerlach forfeited it back to the Canadian company who
had it before them. They promised me the annual BLM fees would be paid.
My Minimum Royalty will likely be another story however.....
Gold prices stink!

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A miner doesn't get paid for doing cleanups, refueling, repairs, moving

the plant to the next digging and a list of other time consuming tasks

that from a pure accounting perspective must be rolled into the cost

analysis. Equipment time must be accounted for.

This is very true and few small miners take these costs into account when figuring their costs. You may have a fuel cost of $200 per ounce, but when you consider maintenance and repairs, lost time for breakdowns, money needed to replace broken equipment, costs to explore for and fine new resources, your real true costs are much much higher than the fuel cost of $200. Ignoring the time cost to do all the other stuff is just denial of the facts.

Ronald C likes this

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So with support and other equipment, you cost is a whole lot more than $200 an ounce as you quoted above, in reality a whole lot more. Real mining companies cannot count operator time as "free".

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Cost analysis;

 

That's the problem with business in general.

 

Mining requires a miner to get dirty. The time spent in the shower is non-revenue. The cost of shampoo has no return on investment to the mining operation. Laundry must be done on a regular basis. Depending on the mine, the laundry process may involve travel to a nearby laundry mat. The time spent watching clothes go around in a clothes dryer is non-revenue.

 

There's more. :)

 

- Geowizard

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C'mon Geowizard, it isn't an either/or situation.

 

Both of you have valid arguments.

A single owner/operator can tweak their operation and eat some of the expenses.

A corporation answers to the shareholders. Oft times the Board makes decisions that a lone operator wouldn't.

 

In the end, all expenses must be covered.

However the lone operator just might write their living expenses off as said operator is going to eat, drink and be merry whether they are mining or sitting at home watching re-runs of "I Love Lucy".

 

eric

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Many businesses find themselves unexpectedly unprofitable. What you do about it in the way of changes and adjustments makes the difference as to if you stay in business or are eventually pushed out by your losses. I have seen businesses which made changes and became very profitable. I have seen others which did not do the things they needed to and were eventually closed.

Geo, you know full well I never said that once a business becomes unprofitable one should "throw in the towel"

- and I haven't altered my posts to make it look that way either!

Real mining operations make a very careful effort to stay in the black.

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No question there is a point where throwing in the towel is mandatory even. When you have no money, no one will give you credit, and the fuel tank is empty, you are done for the time being.

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