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
mines
Sam Ulrich, MAusIMM12
Matt Kanakis3†
David Groves1
Steffen Hagemann1
John P. Sykes, MAusIMM14
& Allan Trench, FAusIMM156
1. Centre for Exploration Targeting, The University of Western Australia
2. Ravensgate Mining Industry Consultants, Australia
3. KPMG, Australia
4. Greenfields Research, United Kingdom
5. Business School, The University of Western Australia
6. 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?
Costs($AU)
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
0
200
400
600
800
1000
1200
1400
1600
1800
2000
0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00
AllinSustainingCosts($AU)
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
Millionsofounces
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$/ounce
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 provinces
Q4 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
Increasingthicknessofmineralisation
Quartz reef /
lode / lens
Quartz
tension vein
Uneconomic thin
quartz veins
Thick laminated
quartz veins
Ladder quartz
veins
Thin stockwork
vein 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
2006200720082009201020112012201320142015
Millionsofounces
Australian Production of
Gold (2006-2015)
1,000
1,200
1,400
1,600
1,800
2,000
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Millionsofounces
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
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).
ASIC Mining Cost vs Gold Grade
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: sam.ulrich@research.uwa.edu.au
Matt Kanakis: mkanakis@kpmg.com.au
David Groves: di_groves@hotmail.com
Steffen Hagemann: steffen.hagemann@uwa.edu.au
John P. Sykes: john.sykes@research.uwa.edu.au
Allan Trench: allan.trench@uwa.edu.au
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.

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

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