New exploration, despite a record amount of money being thrown at it, is not keeping up with reserve depletion.
In 2001 and 2002 miners were producing gold for sub-$180 cash costs - the operational cost of the mine divided by the ounces of production. By 2005 cash costs had risen 45 percent to US$250. Data from GFMS shows world gold production costs for the first half of 2009 averaged $457/oz. Average cash costs in 2011 were US$657.
According to the Thomson Reuters GFMS’s Gold Survey 2012, global gold mine production was flat (output rose 0.1 percent to 1,366 metric tons) in the first half of 2012. The average grade of ore processed globally dropped 23 percent from 2005 through the end of last year and is forecast to decline another four percent in 2012.
The report also said the average cash cost across the gold mining industry for mining an ounce of gold is a record $727 per ounce. The average cash margin dropped to $872 an ounce in the second quarter from as much as $1,032 an ounce in last year’s third quarter.
Operating costs, the bullshine the industry is publishing as cash costs, are increasing, yields are declining and total expenditure has grown in line with the gold price.
Average operating/cash cost figures include only those costs directly associated with the production of the gold such as;
But there’s more, a lot more to costs than most realize.
A complete breakdown of costs, an all-in cost figure, courtesy of CIBC, shows cash operating costs pegged at $700 an ounce, sustaining capital, construction capital, discovery costs and overhead at $600. Add in $200 for taxes and you get US$1500.00 as the replacement cost for an ounce of gold.
Using the all-in figure provides a more accurate and definitive picture of actual mining cost and profit. Also, according to CIBC World Markets, the sustainable number gold miners need is $1,700/oz.
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