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Is Grade King in Gold? A preliminary analysis of gold production costs at Australian & New Zealand mines

AusIMM New Zealand Branch Conference: Wellington, New Zealand: 6 September 2016

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Sam Ulrich, Steffen Hagemann, M. Kanakis, John P. Sykes, David Groves, Allan Trench

Paper associated with this presentation can be found here.

Publicly released operating costs from Australian and New Zealand gold mines suggest that additional geological (and other) factors, beyond the commonly anticipated strong influence of higher gold grades driving costs lower as grade rises, may be equally if not even more important, than grade to costs when the full dataset of mines is considered. Thus the traditional ‘Grade is King’ hypothesis that is used as shorthand by the industry as a proxy for the quality of an operating gold mine is simplistic. Public-domain reported production All-In-Sustaining Cost (AISC) data from 2013 were compared to both mined grade and to other high-level geological attributes of gold mines. Orebody geometry and mineralisation style effects were recognisable in the data to a statistically significant level, whereas the relationship of mined gold grade to costs is less clear. Cost data from
2016 are in agreement with the 2013 data concerning the limited influence from realised mine head-grade on production costs on a portfolio basis. The results of this data compilation not only have relevance to the investment and value appraisal of gold mines, but also to pre-development exploration targeting and exploration strategies as inputs to the potential economic attractiveness of early-stage gold projects. At the least, geometry and mineralisation-style of gold occurrences should sit alongside gold grade as valuable early-stage indicators of asset quality. Host-rocks, metallurgical attributes and scale/depth effects are also likely to impact production costs on an industry scale, but further insights await additional study and analysis. Incremental growth of mineral resources and replacement of ore reserves year-on-year is typical at current operations. Large increases in ore reserves are uncommon, providing less certainty to the long term sustainability of the industry, Average mine reserve life, based on current production rates, is in the order of 5.4 years. More research is needed into the geological drivers of cost competitiveness across the gold sector at industry level in order to aid industry collective intelligence and then also to communicate effectively with industry stakeholders.