2014 gold mine capital cost to peak at US$2,400/oz - SNL Financial
Capital costs are expected to increase to almost US$2,400/oz, before pulling back to about US$1,900/oz in 2015.
Posted: Wednesday , 18 Jun 2014
RENO (Mineweb) -
The cost of building a mine has increased significantly over the last decade, from US$560 per ounce of gold production capacity in 2004 to more than $2,300/oz last year, says a new report by SNL Metals & Mining.
Based on data from mines currently under construction, capital costs are expected to peak this year at almost $2,400/oz, according to an article by SNL metals analyst Kevin Murphy.
“The three-year-running-average capital cost of capacity follows behind the trend set by the gold price,” said the SNL report, Strategies for Gold Reserves Replacement. “When gold prices increased sharply in 2006, producers responded by approving construction of more capital-intensive projects, which began at earlier gold prices.”
“This lag between the change in gold prices and the increased capital cost intensity is simply the time required for construction of more capital-intensive projects, which began at earlier gold prices,” said SNL Metals & Mining. “While producers and prospective producers greatly curtailed capital spending in 2013 and to date in 2014, capital cost intensity is expected to increase to almost US$2,400/oz in 2014, before pulling back to about US$1,900/oz in 2015.”
SNL observed the cost of operating a mine also increased over the last 10 years. “Weighted-average annual cash costs increased about 190% from less than US$250/oz in 2004 to a peak of US$708/oz in 2012, before pulling black slightly to US$702/oz in 2013,” said the report. “Fortunately for producers, annual average gold price increases mostly outpaced cash cost increases during the period, soaring 308% from US$409/oz in 2004 to a peak of US$1,669/oz in 2012.”
The only exception was a 15% drop in gold prices last year, compared to a 1% drop in weighted-average cash costs for the year.
“Based on cash costs alone, it would seem that producers’ margins should be quite healthy; however, our analysis indicates that the total costs of production (comprising reserve replacement, capital spending, operating costs and administration) kept closer pace with gold prices over the 10-year period,” SNL concluded.
SNL subscribers can read the entire study at http://www.snl.com/InteractiveX/Article.aspx?cdid=A-28372573-12585