Allan Trench 12 Matthew Kanakis 23 & John Sykes 12 1. Department of Mineral & Energy Economics, Curtin University 2. Centre for Exploration Targeting, Curtin University & University of Western Australia 3. Consultant, KPMG, Perth WA 6000 Gold Grades and Gold Costs Exploding the High-Grade Myth
The Australian Gold Industry A Rise & Stall scenario (or worse) for the Australian gold industry is a material risk - despite discovery exceptions of recent years (Andy Well, Tropicana) Grade is King over-simplifies the sector s mine economics: If Grade is King, Geology is the Ace That is, publicly reported cost data from 50 mines reveals that scale effects, orebody geometry & mineralisation style are more important to deposit economics than is grade between mines Slide 2 of 43
A case study of geological-economics and the challenges facing Australian gold 12 Australian Production of Gold (1989-2013) 1800 Increases in costs over time 10 1600 Millions of ounces 8 6 4 2 0 1989 1994 1999 2004 2009 USD/ounce 1400 1200 1000 800 600 400 200 0 Growth Capex Cost All-In-Costs Gold Price Source: USGS and Taggart (2013) Slide 3 of 43
Australian gold: About 50 mines with close to 50:50 underground to open pit split of production Fact Total Australian and New Zealand Production Dec Half- Year 2013 Recorded in the Study. Key Figure(s)/Mine example(s) 4,126,319 oz. Percentage of Gold Production from Underground Mines 56% Percentage of Gold Production from Open Pit Mines 44% Percentage of Production that is Gold Only 72% Percentage of Production that is Polymetallic 28% Mined Grade Dec Half-Year 2013 Production-Weighted Average Gold Grade Highest Grade Mine Lowest Grade Mine Cost Information Dec Half-Year 2013 Lowest Cost Mine Highest Cost Mine Lowest Cost Quartile Threshold (25th Percentile) Highest Cost Quartile Threshold (75th Percentile) Source: Kanakis (2014) 3.26 g/t Andy Well (12.45 g/t) Cadia Hill (0.36 g/t) Cadia Hill/Cadia East/Ridgeway $242/oz. (cash costs) $302/oz. (AISC) Challenger $1427.64/oz. (cash costs) Henty $1527/oz. (AISC) $700/oz. (cash costs) $925/oz. (AISC) $950/oz. (cash costs) $1205/oz. (AISC) Slide 4 of 43
How do you think a production cost versus grade chart might look for Australian gold mines? This? Costs ($AU) Lower grade, higher cost mines Higher grade, lower cost mines Grade (g/t) Source: Kanakis (2014) Slide 5 of 43
It is actually not that simple: High grade doesn t equate to low cost! All in Sustaining Costs ($AU) 2000 1800 1600 1400 1200 1000 800 600 400 200 0 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 Operating Grade Q4 (g/t) Open Pit Underground Source: Kanakis (2014) Slide 6 of 43
So what drives relative costs if not grade? Deposit-type tells us little Orogenic Gold and Epithermal Au-Ag deposits gave variable results on the cost curves Porphyry deposits were very low cost except for Boddington Of the IOCG deposits the only figure available was a December Half Year Total Cash Cost for Prominent Hill, which was around the mean of the dataset There is not much to go with here. Slide 7 of 43
What about mineralisation-style then? Slide 8 of 43
Disseminated mineralisation appears 100.00% Percentage of deposits with different mineralisation style in each cost quartile important Production (% of quartile total) 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% Vein/Reef Style Disseminated Deposits with more disseminated style mineralisation displayed lower costs than those with vein/reef style mineralisation Relationship especially evident in the cash cost datasets. 10.00% 0.00% Q1 Q2 Q3 Q4 Source: Kanakis (2014) Slide 9 of 43
Geometry clearly matters too: Lower cost deposits are equidimensional Deposits were defined as equidimensional, planar and cylindrical shaped. Planar Deposit Cylindrical Deposit Equidimensional deposits gave much lower costs than planar and cylindrical deposits. Equidimensional Deposit Gently dipping planar deposits also give lower costs than steeply dipping planar deposits. Source: Kanakis (2014) Slide 10 of 43
Contrasting geometries means that we likely engineer-away grade advantage to reach stopes Source: Kanakis (2014) Slide 11 of 43
THANK YOU Contact information: Allan Trench: allan.trench@curtin.edu.au Matthew Kanakis: mkanakis@kpmg.com.au John P. Sykes: johnpaul.sykes@postgrad.curtin.edu.au For more information: Centre for Exploration Targeting: www.cet.edu.au