Is grade King in gold mining? - Ulrich et al - Sep 2016 - Centre for Exploration Targeting / The University of Western Australia

IS GRADE KING IN GOLD?A preliminary analysis of gold production costs at Australian & New Zealand minesSam Ulrich, MAusIMM12

Matt Kanakis3†

David Groves1

Steffen Hagemann1

John P. Sykes, MAusIMM14

& Allan Trench, FAusIMM156

1. Centre for Exploration Targeting, The University of Western Australia2. Ravensgate Mining Industry Consultants, Australia3. KPMG, Australia4. Greenfields Research, United Kingdom5. Business School, The University of Western Australia6. CRU Group, United Kingdom† Today’s presenter

AusIMM New Zealand Branch Conference: Wellington, New Zealand: 6 September 2016

Is grade king in gold? A preliminary analysis of gold production costs at Australian and New Zealand mines

We need to mine and find better gold ore

05 Sept 2016AusIMM New Zealand Branch Conference, Wellington, New ZealandSlide 2 of 33


But what is better ore? Higher grade?Cos

ts ($A

U)

Grade (g/t)

05 Sept 2016AusIMM New Zealand Branch Conference, Wellington, New Zealand

Higher grade = lower cost mines

Lower grade = higher cost mines

Source: Kanakis (2014)

Slide 3 of 33


No! It is more complex than that

0200400600800

100012001400160018002000

0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00

All in S

ust

ain

ing C

osts

($A

U)

Operating Grade Q4 (g/t)

Open Pit Underground



Slide 4 of 33


Initial investigation: Gold costs and geology (Kanakis, 2014)

Is grade king in gold?

A preliminary analysis of gold production costs at Australian and New Zealand mines



Back in 2013 it was all about ‘costs’

0

2

4

6

8

10

12

1989 1994 1999 2004 2009

Million

s of

ounce

s

Australian Production of Gold (1989-2013)


Source: USGS and Taggart (2013)

2013 Gold Industry Paradigm

• Rising mining costs;

• Flat production growth;

• Flat or falling prices;

• Weak shareholder returns.

• Interest was in linking costs and geology at a higher-level than ‘deposit-scale’ so that we could begin making predictive statements about what types of deposit generally are mined with lower costs.

0

200

400

600

800

1000

1200

1400

1600

1800

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

US$

/ou

nce

Increases in costs over time

Growth Capex Cost

All-In-Costs

Gold Price

Slide 6 of 33


Study covered all of Australia & NZ



Slide 7 of 33


All the famous gold geological provincesQ4 2013

Australia & NZ gold production by Geological

Province


% of Total Gold Production

No. of Operating Gold Mines


Slide 8 of 33


Initial results: There are gold cost-geology linkages (Kanakis, 2014)





Sedimentary vs. igneous host rock unclear


Sedimentary

Igneous

Neither


Q4 2013 Australia & NZ

% of deposits by host rock in each cost

quartile

Slide 10 of 33


But plutonic over volcanic igneous matters


Volcanic

Plutonic

Neither



% of deposits by host rock in each cost

quartile

Slide 11 of 33


Does mineralisation-style matter?


Increasing dispersion of mineralisation

Increa

sing

thick

ness o

f mineralisation

Quartz reef / lode / lens

Quartz tension vein

Uneconomic thin quartz veins

Thick laminated quartz veins

Ladder quartz veins

Thin stockworkvein system

Thicker veins in shear zone

Dispersed breccia hosted mineralisation

LODE / VEIN STYLE MINERALISATION

ALTERATION ZONE & DISSEMINATED SULPHIDE HOSTED MINERALISATION


Slide 12 of 33


Disseminated mineralisation is important


% of deposits by mineralisation style in

each cost quartile


Vein / Reef Style

Disseminated Style


Slide 13 of 33


Refractory mineralisation may also matter


% of deposits by free-milling vs refractory ore in each

cost quartile

NB: Potentially due to the by-products often found in refractory sulphide ores (e.g. copper).


Free-milling

Refractory


Slide 14 of 33


Does deposit geometry matter?



Slide 15 of 33

cylindrical

equidimensional


Equidimensional geometry matters too



Cost curve by deposit geometry

NB: Gently dipping planar deposits also give lower costs than steeply dipping planar deposits.


Planar Deposit

Cylindrical Deposit

Equidimensional Deposit

Slide 16 of 33


Initial implications: Geology matters! (Kanakis, 2014)





Grade is engineered away; geology is not



Slide 18 of 33


Initial study weaknesses: Not big enough… (Kanakis, 2014)





What about deposit type? We don’t know

• Orogenic and epithermal deposits gave variable results;

• Porphyries were very low cost except for Boddington;

• Not enough data for IOCG deposits;

• There is not much to go with here…

• This was effectively a study of the economics of orogenic gold deposits.

0 10 20 30 40 50

Orogenic

Epithermal

Porphyry

VHMS

IOCG

No. mines in the study by deposit type



Slide 20 of 33


Mine maturity & cost cycle unconsidered


Source: Kanakis (2014); Trench & Sykes (2014)

Slide 21 of 33


Correlation not causality• Some hypotheses suggested for link between geological

factors and gold production costs, but no causality confirmed:

– Grade advantage is engineered away in complex deposits?

– Non-equidimensional deposits have greater strip ratios?

– Bulk mining more important than ‘high grade’ mining?

– Higher bond work index of unmineralised host rock is more costly to process?

– Refractory deposits more costly to process but this is overcome by the presence of valuable by-products?

– Complex deposits have higher unit labour costs?



Slide 22 of 33


Expanded investigation: Gold costs and geology (Ulrich et al., 2016-19)





In 2016 we’re back to focusing on growth


Source: USGS; Perth Mint

2016 Gold Industry Paradigm

• Falling costs;

• AUD weakening;

• Strong returns;

• Focus on production growth;

• Rise of Northern Star, Evolution etc.

• Discovery of Gruyere, Andy Well etc.

• But how long can this last?

7

7.5

8

8.5

9

9.5

10

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Millions

of ou

nces

Australian Production of Gold (2006-2015)

1,000

1,200

1,400

1,600

1,800

2,000

Jan-11

Jul-1

1

Jan-12

Jul-1

2

Jan-13

Jul-1

3

Jan-14

Jul-1

4

Jan-15

Jul-1

5

Millions

of ou

nces

Gold Price AUD vs USD (2011-2015)

Slide 24 of 33


But running short of ‘quality’ ore• Australia & NZ good at growing ‘resources’ (i.e. EDR),

now often 5-35 years worth;

• But struggle to make dramatic increases in ‘reserves’;

• Many of Australia’s best mines are its oldest;

• 14% of gold is mined at operations with less than 2 years of reserves…

• 38% of gold is mined at operations with less than 5 years reserves…

• Average reserve life is 5.4 years.

• More high quality (i.e. reserve standard) ore discoveries required – both greenfield and brownfield;

• Once again we’re trying to understand ‘high quality’…


Source: Ulrich et al., (2016)

Slide 25 of 33


Hypothesis remains: grade is not quality


Q1 2016 Australia & NZ All-in-Sustaining Cost (ASIC) vs Gold Grade


Slide 26 of 33


Causality emerging: Focus on mining


Grades and costs correlate at the processing stage, but not the mining stage, suggesting that the geological factors influencing processing (e.g. bond work index) are less important than those that influence mining (e.g. geometry).

Q1 2016 Australia & NZ ASIC Mining Cost vs Gold Grade

Q1 2016 Australia & NZ ASIC Processing Cost vs Gold Grade


Slide 27 of 33


More analysis to come…• Longer time series of

analysis to confirm initial findings;

• And account for mine maturity and cost cycle;

• Deeper investigation into causality linking geology and cost in gold mining;

• Wider consideration of non-technical industry factors that may be important.



Slide 28 of 33


Conclusions: How does geology drive costs and why does it matter?





Are we rising or stalling?• The Australia & NZ gold mining industry must remain competitive through the industry cost cycle:

– Reducing costs during periods when margins are squeezed (i.e. 2013);

– Bringing on new, competitive supply when margins are increasing (i.e. now).

• A ‘rise & stall’; or ‘rise & fall’ scenario is a material risk otherwise; – Emerging signs of success in both production growth (Northern Star, Evolution etc.) and recent discoveries (Andy Well, Gruyere, Tropicana etc.)

– However whilst ‘resource’ growth is strong, we remain short of mineable ‘reserves’;

– A focus on discovering and mining more ‘reserves’ rather than ‘resources’ required.

• ‘Grade is king’ over-simplifies the sector’s mine economics;– Geological factors such as mineralisation style, deposit geometry and host rock are at least as important as grade at an industry-level;

– Future greenfields and brownfield exploration may have to consider these factors earlier in the exploration process (but how?);

– M&A due diligence may need to add greater weight to such factors;

– Non-grade geological factors may increase in importance in mine planning.

• Clearly more research is required in this important area of study.



If Grade is KING; Geology is the ACE

• Equidimensional deposit;

• With disseminated mineralisation;

• Hosted in plutonic igneous rocks;

• Potentially with by-product rich refractory ore;

• And maybe some high grade ore…



Slide 31 of 33

THANK YOU

CONTACT DETAILS

Sam Ulrich: [email protected]

Matt Kanakis: [email protected]

David Groves: [email protected]

Steffen Hagemann: [email protected]

John P. Sykes: [email protected]

Allan Trench: [email protected]

AusIMM New Zealand Branch Conference

Wellington, New Zealand: 4-6 September 2016


Further reading

• Ulrich, S., Kanakis, M.D., Groves, D., Hagemann, S., Sykes, J.P. & Trench, A. 2016. Is Grade King in Gold? A Preliminary Analysis of Gold Production Costs at Australian and New Zealand Mines. AusIMM New Zealand Branch Conference. Wellington, New Zealand. 4-6 September.

• Kanakis, M.D. 2014. Geological Factors that Influence the Cost of Production in Currently Operating Gold Mines within Australia and New Zealand. BSc (Mineral Geoscience) Honours Thesis. The University of Western Australia.


Economy & Finance

Is grade King in gold mining? - Ulrich et al - Sep 2016 - Centre for Exploration Targeting / The University of Western Australia