Gold Miners Fight for Cost Savings

“Another $50 off the gold price and this industry is toast,” Randgold Resources’ outspoken chief executive Mark Bristow told reporters earlier this month. The price has since dropped by more than $50 an ounce to under $1,100, extending an unforgiving slide in prices that is now in its fourth year.

Analysts trying to pinpoint the industry’s breakeven point however have been left chasing a moving target, with costs moving as rapidly as prices and miners showing surprising resilience in the face of the new normal.

An extreme example is Shanta Gold, owner of a string of open pit gold deposits in Tanzania. The company’s first quarter results looked dicey, with all-in costs of $1,451, well above the gold price. But its latest quarterly figures show that Shanta has knocked nearly $300 per ounce off its cost of production.

“By far and away the majority” of the saving comes from a revision to the mine plan at Shanta’s New Luika mine, chief executive Toby Bradbury told Master Investor. “We know we’re going to take the mine underground at some point and we’re looking at every block in the resource and saying, is this block better mined from surface or underground.”

According to a reserve update released yesterday, the revision has reallocated 67,000 ounces to the underground operation, whilst permanently cutting 17,000 of the mine’s least profitable ounces from New Luika’s mining schedule.

“The reserves haven’t gone away, they’re still there,” Bradbury says. “They are just going to appear in a different order of mining. What we’ve been able to do is knock off the high cost, high strip ratio reserves that were previously included in the plan.”

The extent of Shanta’s savings may not be matched across the industry, but New Luika’s new mine plan highlights the dramatic improvements miners are mustering when it becomes a question of survival. Shanta also switched its operations from diesel to heavy fuel oil last year and has ridden a dramatic fall in the oil price in the last 12 months, cutting a further $45 to $50 per ounce off its costs.

All-in production costs reported last week were $1,157, still above the spot price. But Shanta’s monthly performance in June, which saw output jump 89 per cent to 7,480 ounces as the company accessed new ore at its Bauhinia Creek operation, suggests another $300 per ounce can be cut from costs in the second half of this year.

“If you look at the June performance, it’s about delivering June for the rest of this year,” says Bradbury, who joined the company earlier this year as part of a management shakeup. “I have a view that we can always improve, so it doesn’t matter how good we are, we can always look for ways to do things better.”

“It’s a journey, it’s not a destination.”