Gold and Silver • Golden Bullshine

As a general rule, the most successful man in life is the man who has the best information

In 2001 and 2002 miners were producing gold for sub-$180 cash costs – the operational cost of the mine divided by the ounces of production. By 2005 cash costs had risen 45 percent to US$250. Data from GFMS shows world gold production costs for the first half of 2009 averaged $457/oz. Average cash costs in 2011 were US$657.

According to the Thomson Reuters GFMS’s Gold Survey 2012 global gold mine production was flat (output rose 0.1 percent to 1,366 metric tons) in the first half of 2012. The average grade of ore processed globally dropped 23 percent from 2005 through the end of last year and is forecast to decline another four percent in 2012.

The report also said the average cash cost across the gold mining industry for mining an ounce of gold is a record $727 per ounce. The average cash margin dropped to $872 an ounce in the second quarter from as much as $1,032 an ounce in last year’s third quarter.

Operating costs, the bullshine the industry is publishing as cash costs, are increasing, yields are declining and total expenditure has grown in line with the gold price.

Average operating/cash cost figures include only those costs directly associated with the production of the gold such as;

Wages
Cost of energy
Raw materials such as steel, explosives etc

But there’s more, a lot more to costs than most realize.

A complete breakdown of costs, an all-in cost figure, courtesy of CIBC, shows cash operating costs pegged at $700 an ounce, sustaining capital, construction capital, discovery costs and overhead at $600. Add in $200 for taxes and you get US$1500.00 as the replacement cost for an ounce of gold. Using the all-in figure provides a more accurate and definitive picture of actual mining cost and profit. Also, according to CIBC World Markets, the sustainable number gold miners need is $1,700/oz. As I write this gold is trading at $1726.00/oz.

The reasons behind flat-lining gold production, and record cash and all-in costs, are numerous:

Production declines in mature mining areas
Slower than expected ramp-ups of output
Development time up
The entire resource extraction industry suffers from a lack of skilled people
Extreme weather
Labor strikes
Protests
Additional challenges include:

Increasingly more remote and lacking in infrastructure projects
Higher capex costs
Increased resource nationalism
Increased environmental regulation
More complex metallurgy
Lower cutoff grades

The biggest worry the industry has is that despite a significant investment in exploration (a record $8b in 2011) there’s a lack of discovery with few large high grade deposits being discovered.

cont

http://www.24hgold.com/english/news-gol … hard+Mills

Statistics: Posted by yoda — Mon Dec 03, 2012 11:54 pm