towards an understanding of production costs at australia ... · 13th ausimm underground...

13th AusIMM Underground Operators’ Conference 2017 Capturing the Opportunities: Communication, Collaboration, Innovation

16-18 October 2017, Gold Coast, Australia

Towards an understanding of production costs at Australia’s underground gold minesSam Ulrich, MAusIMM12

Allan Trench, FAusIMM134

Steffen Hagemann1

1. Centre for Exploration Targeting, The University of Western Australia2. CSA Global, Perth3. Business School, The University of Western Australia4. CRU Group, United Kingdom

Towards an understanding of production costs at Australia’s underground gold mines

Introduction• Reported Mining Costs• History of Studies• Snapshot at 2017 Q2

– Cost Curves, Grade Curves

• Time Series 2014 Q1 to 2017 Q2– Grade v Costs

• Conclusions & Implications

16 Oct 2017AusIMM UG Operators Conference, Gold Coast, AustraliaSlide 2 of 25


Reported Mining Costs





Reported Mining & Production Costs

• Comparing costs on $/oz basis since at least 1940• Gold Institute – Cash Costs, Total Cash Costs• Brook Hunt – C1, C2, C3• Company Specific – CAS, NCE• World Gold Council – AISC, AIC• By-products v Co-products• Voluntary & Unregulated• Non-GAAPThis study using All-in Sustaining Costs (AISC)


“A gold mine is a hole in the ground with a liar standing on top of it.” origin unverified


HistoryStudy Context





A Really Brief History


Initial study by Kanakis (2014) on 2013 Q4 data for all Australian and New Zealand gold mines showed there are linkages between costs and geology:

• Mineralisation style – distributed v discrete• Mineralisation geometry – planer v cylindrical shoots v equidimensional • Host rock – nothing clear• Refractory mineralisation – important ??? (needs further work)• Grade is king hypothesis – not as simple as it sounds

Initial study weakness: Not big enough

A follow-up study by Ulrich et al. (2016) on 2016 Q1 data confirmed Kanakis finding on grade is king.

Testing the hypothesis grade is king


History cont…


Cos

ts ($

A/oz

)

Gold Grade (g/t)

Lower grade = higher cost mines

Higher grade = lower cost mines

The Grade is King Hypothesis

Source: Kanakis 2014


History Cont…

2013 Q4 – Kanakis (2014) 2016 Q1 – Ulrich et al. (2016)


0

400

800

1,200

1,600

2,000

0.00 2.00 4.00 6.00 8.00 10.00 12.00

All-i

n Su

stai

ning

Cos

ts ($

A/oz

)

Average Gold Feed Grade (g/t)

OP OperationOP/UG OperationUG Operation

0

400

800

1,200

1,600

2,000

0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00

All i

n Su

stai

ning

Cos

ts ($

A/oz

)

Average Gold Operating Grade (g/t)

Open PitUnderground

Grade v Costs Relationship Not That Simple at Industry Level


Snapshot of Australian Gold MiningQuarter Ending 30 June 2017





Cost Curve – AISC (Reported)


2017 Q2Reported AISC

2017 Q2 Gold Price

1st Quartile ≤ A$886/oz

Median = A$1,054/oz

4th Quartile > A$1,256/oz

1st Ernest Henry -A$432/oz



2017 Q2Adjusted Co-AISC

Cost Curve – Co-AISC (Adjusted)

Gold-plus mines• Ernest Henry• Cadia• Mt Carlton• Boddington• Hera• Peak• Beta Hunt

1st Fosterville A$517/oz2017 Q2 Gold Price


Grade Curve – Ave Feed/Head Grade


2017 Q2Reported Ave

Feed Grade (g/t)

Highest – FostervilleHigh quartile ≥ 5.35 g/tMedian = 2.19 g/tLow quartile ≤ 1.24 g/tLowest – Ernest Henry & Cadia


Time Series AnalysisAustralian Gold Mining1 January 2014 to 30 June 2017





Time Series Study Period


0

250

500

750

1,000

1,250

1,500

1,750

2,000

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

AISC

& G

old

Pric

e (A

$/oz

)

Study period

Gold price (monthly average)

Upper quartile

Lower quartileMedian

• Relatively stable study period – no evidence for cost escalation


All Mines – Reported Grade v AISC


-500

0

500

1,000

1,500

2,000

2,500

3,000

3,500

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0

AISC

(A$/

oz)


OPUGOP & UGNMReported Grade v AISC

• Still a scatter• Industry trends emerging• Gold-plus mines

problematic


Grade v AISC


0

500

1,000

1,500

2,000

2,500

3,000

3,500

0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00

AISC

(A$/

oz)


Note: excludes underground gold-plus operations

Underground gold mines – Overall grade cost relationships

Non-linear Relationship

• As grade increases, AISC decreases, but decay rate less than growth rate of AISC, if grade decreases


UG Mines - Grade v Processing Costs


0

100

200

300

400

500

0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00

Proc

essi

ng C

osts

(A$/

oz)


• Strong negative relationship between processing costs and gradeNote: excludes underground gold-plus operations


UG Mines - Grade v Mining Costs


0

200

400

600

800

1000

1200

1400

0.00 3.00 6.00 9.00 12.00 15.00

Min

ing

Cos

ts (A

$/oz

)


0

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1000

1200

1400

0.00 3.00 6.00 9.00 12.00 15.00

Min

ing

Cos

ts (A

$/oz

)

Average Gold Mined Grade (g/t)

Costs dominated by 3 mines

Note: excludes underground gold-plus operations

• Considerably less of a cost difference with changing grade• Factors affecting what is being mined most important

• Geology, geometry etc


Individual Mines - Grace v AISC


0

250

500

750

1,000

1,250

1,500

1,750

0 2 4 6 8 10 12 14 16 18

AISC

(A$/

oz)


Fosterville

0

250

500

750

1,000

1,250

1,500

1,750

0 2 4 6 8 10 12 14 16 18

AISC

(A$/

oz)


Jundee

Non-linear relationship


Individual Mines - Grace v AISC cont…


0

250

500

750

1,000

1,250

1,500

1,750

0 2 4 6 8 10 12 14 16 18

AISC

(A$/

oz)


Paulsens

0

250

500

750

1,000

1,250

1,500

1,750

0 2 4 6 8 10 12 14 16 18

AISC

(A$/

oz)

Avergae Gold Feed Grade (g/t)

Gwalia

Non-linear relationship


Individual UG Mines Grade v AISC


0

500

1,000

1,500

2,000

2,500

0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00 20.00

AISC

(A$/

oz)


Non-linear relationshipPower function i.e. y=ax-b

• Individual mines have different grade-cost relationships• Individual grade cost relationships different to overall industry relationship


Conclusions & Implications





Conclusions & Implications


• “Grade is King” • Yes - for individual UG gold mines• Not that simple when comparing all UG gold mines

• Grade v costs – strong negative relationships • Quantifiable for most individual UG mines

• Different grade-cost profiles between mines• Different rates of growth or decline in AISC as grade changes• Therefore, grade is not a direct indicator of quality• What’s driving this? – More study required

• geology (mineralisation style, structure etc) • geometry• ???


Conclusions & Implications Cont…• Mine owner implications

• Declining grades or high grade opportunities on AISC• Ore Reserve grades varying to recently processed grades

• Implications for M&A • Opportunities and risks of varying grades at mines with different grade-

cost profiles. • Which mine might be a better buy for your company’s risk profile?

• The Future – Could one potentially determine a grade-cost profile at the resource stage or earlier, by knowing and understanding the fundamental attributes that drive costs?



Contact DetailsSam Ulrich: [email protected] trench: [email protected] Hagemann: [email protected]

Further Reading• Ulrich, S., Trench, A & Hagemann, S. 2017. Towards an

understanding of production costs at Australia’s underground gold mines. 13th AusIMM Underground Operators’ Conference. Gold Coast, Australia. 16-18 October.

• Ulrich, S., Kanakis, M.D., Groves, D., Hagemann, S., Sykes, J.P. & Trench, A. 2016. Is Grade King in Gold? A Preliminary Analysis of Gold Production Costs at Australian and New Zealand Mines. AusIMM New Zealand Branch Conference. Wellington, New Zealand. 4-6 September.

• Kanakis, M.D. 2014. Geological Factors that Influence the Cost of Production in Currently Operating Gold Mines within Australia and New Zealand. BSc (Mineral Geoscience) Honours Thesis. The University of Western Australia.


CSA GlobalMining Industry Consultants

Acknowledgments

The supportive mining companies



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