(Kitco News) - The World Gold Council (WGC) has released a report highlighting the fact that the cost of production of gold could be on the rise. Adam Webb who is Director of Mine Supply at Metals Focus notes costs in the gold mining industry increased for the second consecutive quarter in Q1 2021, with the global average All-in Sustaining Cost (AISC) up by 5% q/q to $1,048/oz, reaching its highest level since Q2 2013.
We cannot forget the costs of the workers. This is being driven by increased demand for skilled workers as metal prices incentivize project development across multiple commodities, combined with COVID-19 travel restrictions limiting the availability of workers, and contractors.
Opening a new mine or expanding an existing operation can be a challenging and daunting task. Aside from assessing and evaluating social-environmental concerns and designing the mining and material movement approach, the first question often asked is, "how much will it cost us to mine?" This may need to be determined even before you decide that there is a potential project. Mine cost estimation may be done at many levels. At first it may be a simple back of the envelope estimation using similar operations to benchmark against. Later it may be decided to use an existing mine that the company owns and factor and compare costs against them. In the final stages a detailed bottom-up estimation based on first principles may be completed.
This paper will investigate common methodologies of estimating operating costs for mines and present examples from actual operations and why those methods were selected. It will highlight why some methods are superior to others. Finally, we will explore the potential pit falls in cost estimation that often occur and the opportunities that may exist to lower mine costs.
When billionaire Elon Musk announced that Tesla would no longer accept bitcoin as payment for its electric vehicles, the price of the crypto asset tanked. In justifying this decision, Musk cited bitcoin minings inefficient use of electricity as well as its impact on the environment. In fact, before Musk waded into this debate, many opponents of the crypto had repeatedly attacked bitcoins energy-consuming transaction confirmation process.
As expected, bitcoin maximalists and crypto supporters have been pushing back against what they see as an unbalanced argument. To bitcoiners, the environmental impact claims or electricity costs argument completely ignores the negative externalities associated with the creation/production of alternative stores of value like gold and fiat.
Already, a number of reports have not only countered the BTCs carbon footprint argument but have also exposed the environmental costs of running a conventional currency system. For instance, Bitcoin.com News recently reported another billionaire, Mark Cuban, informing Musk that his organization was going to continue accepting crypto.
However, until recently, not many reports had solely focused on the negative externalities that are associated with the extraction of gold. The precious metal, which for centuries had been the traditional alternative store of value, has seen its position being challenged by BTC in the past few years. This challenge has inevitably led gold supporters and bitter opponents of bitcoin like Peter Schiff to wage a war against bitcoin. Now a new report that at least exposes the true costs of gold mining in Africa might swing the initiative away from opponents.
The report, which is titled Illicit Gold Markets in East and South Africa is an expose of the violence, human trafficking, and corruption that accompanies gold extraction in some parts of Africa. The reportwhich focuses on artisanal gold mining in Kenya South Africa, South Sudan, Uganda, and Zimbabweexposes the real damage to the environment being caused by this type of gold mining. For instance, the report notes how the trade of illicit mercury, a substance that has been declared dangerous to human health and the environment, is in fact tied to the illicit gold trade in countries like Zimbabwe.
In addition, the report, which was commissioned by the Global Initiative Against Transnational Organized Crime (GITOC), accuses certain corrupt Zimbabwean officials of allowing mining in protected areas like Matobo and Umfurudzi national parks.
According to the report, these illegal miners, who are often foreign nationals from poor backgrounds, are being exploited by criminal gangs. In detailing how these miners are abused, the report states:
They can also be forced to work underground for weeks, sometimes before resurfacing. These miners are also exposed to murder, forced migration, money laundering, corruption, racketeering, drugs and prostitution on a scale not seen elsewhere in Africa.
In South Sudan, Africas youngest country, gold mining is dominated by tens of thousands of artisanal miners who however lack appropriate equipment and safety measures. Consequently, reports from the country reveal that collapsing trenches are responsible for killing up to 4 miners per month. In Kenya, mining regions on the borders with South Sudan, Ethiopia, and Uganda are in some of the most dangerous parts of the country and are considered to be a haven for organized crime.
Meanwhile, throughout this 73-page document, the authors attempt to highlight the true impact, as well as the hidden cost of gold production in these five African countries. Although these revelations might be nothing new to many in Africa, for crypto supporters, this document brings some fresh context to the bitcoin energy use debate. The revelations mean any future comparison of gold and bitcoin should not ignore the points that are raised in the GITOC report. For gold bugs like Schiff, trashing bitcoin while completely ignoring the precious metals own issues will be disingenuous.
Still, this report also raises an important question: Should bitcoin be judged solely on electricity use or maybe it should be judged based on how it has been pivotal in forcing some central banks to start reforming? If crypto opponents cannot offer a different argument to support the current one, then it will be difficult to argue the case against bitcoin without being accused of bias.
So while the likes of Elon Musk might want to continue to propagate bitcoins energy mantra, such comments will only have a temporary impact on the crypto economy, as has happened in the past weeks. Genuine interest in BTC and other digital assets will not go away based on the current argument alone. Central banks and governments will have to come up with an alternative that beats both fiat and cryptocurrencies if any efforts to kill BTC are to ever succeed.
Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.
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The Southern Africa PGM operations are supported by a pipeline of seven projects, which are at varying stages of development. The projects K4, Klipfontein, Blue Ridge, Zondernaam, Hoedspruit, Akanani and Limpopo are all located on the Bushveld Complex in South Africa and present significant optionality to sustain and/or enhance the current production profile.
K4 is a large, long-life, high-grade Merensky and UG2 proposition situated on the western limb of the Bushveld Complex, in South Africas North West Province. It is a partially completed project with an equipped main production shaft and ventilation shaft, some underground infrastructure installed and underground workings developed far enough to reach the reef. The project was abandoned in 2017 owing to the financial stress of the previous owner, Lonmin. Sibanye-Stillwaters Board approved the capital growth project in early 2021, allocating R3.9 billion to complete the mines vertical shaft infrastructure. Work at K4 will start in 2021 with maintenance and preparation of underground areas, leading to first production in 2022. K4 is expected to have a 50-year life of mine producing some 11.5 million 4E ounces.
Klipfontein is a shallow open-cast project that will mine the UG2 reef at a depth of approximately 45m. The project will be operated as 50/50 joint venture with Anglo American Platinum as part of the current pooling and sharing area (PSA). The Klipfontein UG2 opencast feasibility study was completed in June 2020. The Mineral Resource of the Klipfontein UG2 opencast has approximately 0.16Moz and 1.3Mt of ore at an average grade of 3.4g/t (4E) within the project area.
The proposed Klipfontein opencast pit has a strike length of 2km and will extend to a maximum depth of about 40m. A roll-over mining methodology will be applied, with an average stripping ratio of 11.28. Production of 50ktpm of RoM ore is targeted for a total production of 300koz 4E PGM per annum for three years. Rehabilitation will be completed by the mining contractor at the end of the three-year mine life.
The Zondernaam project is an early stage exploration project situated along the northern part of the eastern limb of the Bushveld Complex, about 35km east of Lebowakgomo, Limpopo province , which is a joint venture between Sibanye-Stillwater (74%) and Bakgaga Mining (26%), comprises seven contiguous farms to the north of the Phosiri dome and to the west of the Bokoni platinum operation.
Due to the depth of the mineralisation (in excess of 1,500m), the project is not currently being considered for advancement or development. To date, seven exploration holes have been drilled and confirm the presence of both the UG2 and Merensky Reefs. However, the exceptional grades encountered on the UG2 (6.4 g/t), over widths of between 0.8m and 1.65m support the reasonable prospect for eventual economic extraction.
Blue Ridge is a 50:50 joint venture with Imbani Platinum acquired in the 2016 all-share offer for Aquarius Platinum. It is situated approximately 30km southeast of Groblersdal on the eastern limb of the Bushveld Complex. With mining operations under care and maintenance since 2011, studies into the feasibility of re-opening the operation are underway and due to be finalised in 2020.
Akanani, acquired as part of the Lonmin transaction, is an advanced stage exploration project located on the northern limb of the Bushveld Complex, 30km northeast of the town of Mokopane. Extensive exploration drilling, targeting the Platreef, has been conducted on the property and a world class Mineral Resource has been delineated, immediately down-dip and towards the west of the Mogalakwena mine, owned by Anglo American Platinum. The viable Mineral Resource offers the potential for a long-life, low-cost operation. The wide orebody would enable a fully mechanised, long-hole, open-stope mining operation.
Through the 2016 Aquarius Platinum acquisition, Sibanye-Stillwater holds a 74% stake in the Hoedspruit project located near the town of Rustenburg. The Hoedspruit project is located near the town of Rustenburg in the North West province of South Africa. The property comprises an area of approximately 578.6ha situated adjacent and contiguous to Sibanye-Stillwaters Rustenburg Platinum Mines (SRPM) Siphumulele 1 Shaft to the west along strike and Siphumelele 2 Shaft to the south and up-dip.
The Limpopo project, in which Sibnaye-Stillwater has an effective 95.3% interest, is located on the northern section of the eastern limb of the Bushveld Complex in the Limpopo province. The larger project area consists of three contiguous mineral title areas, namely Voorpseod, Dwaalkop and Doornvlei. The are centred around the Baobab mining operation, located on the Vooersped mining right, which is currently under care and maintenance.
Since the take-over of the Limpopo project from Lonmin in June 2019, the Group has initiated a strategic review process, which included the revision and updating of the 2017 feasibility study, to assess an optimal development timeframe for these assets. Due to the steep dip of the UG2 and Merensky Reefs, the project remains an attractive mechanisation option, which fits well with Sibanye-Stillwaters strategic goals.
During the height of the mining boom, record-breaking commodity prices notionally supported the development of marginal high-cost, low-productivity mineral deposits. As commodity prices dropped, companies responded by slashing costs a traditional response to a shifting market cycle. Which begs the question: When the cycle turns again, will costs once more rise to unsustainable levels?
To prevent this constant cycle of cost takeout and cost creep, miners must go beyond traditional cost cutting measures. Instead, industry productivity (defined as the GDP value contribution an average worker creates in an hour of work) needs to rise before companies can reclaim shareholder support and deliver bottom line value.
Miners cant control the vagaries of the world economy that shift currencies and commodity prices. However, they can control how they operate. As companies refocus on becoming lowest-quartile cost producers, they will need to move away from reactionary cost cutting and towards sustainable cost management programs. Here are some strategies to consider, from Deloittes Mining spotlight on sliding productivity and spiraling costs.
Independent project analysis in Australia shows that approximately 65% of mega-projects in excess of AU$500 million fail to deliver targeted value. To improve project outcomes, mining organizations can:
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