Gold producers work to reduce cash costs

Faced with lower gold prices and shrinking profit margins, most North American gold miners continued to slash costs in 1992. In many cases, lower cash costs were accompanied by increased production.

Of the major North American producers, American Barrick Resources (TSE) reduced its cash cost the most. It dropped to $210 per oz. from $305 in 1991, largely due to an increase in low-cost production from the Goldstrike mine in Nevada. Barrick also produced a record 1.32 million oz. in 1992, compared with 789,846 oz. in 1991.

The highest-cost producer in the group was Homestake Mining (TSE) at $248 per oz. Although it produced more than 1.8 million oz. last year, the company has been struggling with costs at many of its operations for several years. A new underground plan was implemented late last year at the Homestake mine in South Dakota. By doing so, the company hopes to reduce mining costs from the current $316 per oz., and increase production. The mine has more than 21 million tons grading 0.228 oz. per ton.

At Homestake’s two lowest-cost mines, Williams and David Bell, costs rose by 2% and 38% respectively. Homestake’s share of production at these mines, near Hemlo, Ont., also decreased, by 12% to 369,900 oz.

The lowest-cost producer was Hemlo Gold Mines (TSE) at $125 per oz., down from $133 in 1991. Last year, more than 90% of production came from the Golden Giant mine near Marathon, Ont.

Of intermediate producers, Rayrock Yellowknife Resources (TSE) reduced its cash cost the most, down to $198 from $283 in 1991. This was largely due to an increased interest, acquired late last year, in the low-cost Marigold mine. By acquiring the Hope Brook mine in Newfoundland, high-cost producer Royal Oak Mines (TSE) hopes to lower cash costs in 1993 to around $280 per oz., which would be down considerably from $304 in 1992.

In discussing cost per oz., the terms “operating,” “production,” “total” and “cash” are often used. It should be noted that many companies define costs differently.

In general, production cost reflects the costs incurred to extract the ore, smelt and refine it. Operating cost includes production cost as well as other expenses such as taxes and security. Cash costs and total costs generally include depreciation, amortization, overhead, head office costs and the cost of capital, as well as production/operating costs.

1992 Gold 1992 Cash

Production Cost

(000/oz.) (US$/oz.)

Senior Producers

American Barrick 1,325 210

Echo Bay Mines 764 237

Hemlo Gold Mines 492 125

Homestake Mining 1,845 248

Lac Minerals 1,100 213

Newmont Gold 1,588 207

Placer Dome 1,953 186

Teck 380 N/A

Intermediate Producers

Agnico-Eagle 171 229

Cambior 354 302*

Rayrock Yellowknife 82 198

Royal Oak Mines 245 304

* price in $CDNN/A – not available