Rising costs hurt mining operations
Source: 08-AUG-2008 Intellasia |Otago Daily Times
Aug 8, 2008 - 7:00:00 AM Gold has been the driver at the annual Diggers and Dealers conference primarily because it is the metal that has been the breadwinner for the city of inland Western Australia, Kalgoorlie.

But while last year Newmont's former president, Pierre Lassonde, again correctly picked the gold price as going above US$1000 an ounce to provide some adrenalin to the pundits, the story on gold this year was somewhere between mixed and bad, with a few exceptions.

On day one, Newmont Mining Corporation presented a generally positive picture, with one serious blemish - the 50% owned Super Pit project in Kalgoorlie, which had cash operating costs for equity gold sold in the June quarter of US$860 an ounce.

The following morning a report that Newmont was interested in selling its stake spread like wildfire among the 1700 delegates.

Mines caught with rising fuel and energy bills (like Oceana) for hauling ore to their mills from open cuts or underground operations, are those being hit hardest.

Newmont, which is keeping its cash costs at Waihi in New Zealand in line, has seen its Super Pit costs rise by about 70% in the past year.

Leading gold mining State, Western Australia, is dependent on fly-in, fly-out workforces to attract and maintain competent teams, but there is now stress and cutbacks with these, due to the higher costs of flying the teams back and forth to Perth.

The operations of New Zealand's Oceana Gold at Macraes in East Otago, and Reefton on the West Coast, should not feel like orphans in the bad news department.

Oceana Gold's unpalatable total operating costs of US$741 an oz are a symptom of an Australasian malaise, where there are many worse cases without booked forward development costs to soften the blow ahead.

There have been several mine closures in Australia, and companies like Monarch Gold Ltd are under management owing millions to other companies in loans, and forfeiting the right to buy the Mt Magnet gold operation, which was to be the jewel in its crown.

At previous Diggers and Dealers conferences there was criticism of explorers venturing overseas, particularly to exotic places.

However, two presentations this year thumbed their noses at detractors.

Kingstream Consolidated has been granted licences to expand development in Thailand for a projected healthy profit and Sino Gold Mining is moving into strong profitability mining in China.

Sino Gold's CEO Jake Klein contrasted Australia's poor cost competitiveness with China's.

Open pit mining costs in China were about US$1.30 a tonne (AUS$2-US$4), tunnel mine development at US$1700 a metre (AUS$3000), shaft sinking US$4000 (more than US$20,000 in Australia), skilled mine operator US$20,000 (US$100,000 in Australia), and a senior geologist US$35,000 (US$110,000 in Australia).

Australia's only big domestically owned gold miner, Newcrest Mining Ltd, was another positive example.

Its group cash operating costs averaged US$261 an oz for all operations, particularly helped by Cadia Valley mines in New South Wales having strong copper credits.

Newcrest is becoming a global miner with highly profitable operations like Gosowong in Indonesia and is now ploughing millions into its 50% acquired Hidden Valley and Wafi projects in Papua New Guinea.

Newcrest has a huge war chest.

The Otago Daily Times asked Tim Lehany, general manager operations, whether this was a good time to acquire some of Australia's troubled operations.

Lehany said Newcrest's mergers and acquisitions team was extremely busy scanning the globe for opportunities and while the team was "out there, kissing frogs", it had found few princes.