Thread by @NeilRingdahl

1/18 MINING COST ASSUMPTIONS r subjective & r based on many variables, e.g:
Currency, country, mining Co, hrs worked, % local materials, tax, import duties, power type & cost, productivity levels, mining method, depth, geotech, rock hardness, size of resource etc. etc. So how...

2/18 can one make any reasonable cost assumption for a particular mine? The answer is simple: BENCHMARKING and if you can, ZERO-BASED COSTING which is hard work. Experience is a critical element in this. By experience I mean 5-10yrs 3D computer mine planning just does not cut it.

3/18 RELEVANT practical experience is key & even when you have that it's still easy to get it wrong without conducting a proper engineering study, checking the costs by quotation or from actuals, & benchmarking those for sanity, & constantly questioning the reason for variances.

4/18 By way of example how much does a shaft cost to sink? Apart from the diameter & depth, we have hoisting capacity, ground conditions, water ingress, contractor/owner costing etc. as local technical considerations apart from the others listed earlier. Think about the Q below:

5/18 The infamous (Rubicon) Phoenix Gold Mine's # is 730m deep & cost at least $100M or $136K/m to sink (pls. correct me) Caledonia's Blanket Mine No 4# is 1,203m deep & cost <$30M or $21K/m to sink. Ivanhoe's New # will be way over both because its going to hoist 6 x the volume.

6/18 Anyone who knows a lot about sinking shafts could be as much as 40% out on 1st assumption, due to some overlooked item. Development $/meter is also hard to gauge. Cross-sectional area & support requirement is probably the biggest differentiation. A 5x5m end costs €4,000/m

7/18 at one mine in southern Spain, and the same end size costs just $2,000/m in Central America. In the end only if you know why they are different is it valuable. ZERO-BASED costing ie. calculate from first principles down to the last hr worked, hole drilled & cap used

8/18 is the best way to do it, but you need to know what you are doing here too. Because Assumption. As a project goes from scoping to FS, the more accuracy and precision is used to removed assumption: Detailed design, tendering & quoting down to every last bolt.

9/18 I think the biggest issue with costing is that people tend to confuse fixed & variable costs and AISC and OPEX. Its always best to first work out the TOTAL $ cost for everything if you can. Then divide it by whatever you like. Try to separate fixed costs from variable.

10/18 FIXED cost generally don't stop when mining & milling stops. Like water-pumping power cost and labour. VARIABLE costs tend to stop when mining costs stop and vary with production rate. Like milling power costs, and consumables. Note some costs can have both components. It's

11/18 easier to benchmark the fixed and variable costs than mining cost or processing cost as a whole. Accountants like to play with AISC, AIC and OPEX definitions. They BS and fudge numbers in cahoots with their COO's to make themselves look good, so its always best to work out

12/18 the total overall cost if you can and then try to isolate total fixed costs. Then try to split out the Capex & Opex fixed costs. Finally all the rest (variable cost) goes to Opex, and if you have waste development tonnes or stripping ratios, you can pro-rata some of

13/18 these to Capex based on the amount of waste mined relative to ore. That's what I do anyway. Once I have the TOTAL numbers for Fixed & variable Capex & Opex I can start to play with unit costing. For many of you simply evaluating company results, you can work backwards and

14/18 look at efficiencies using the production numbers & unit costs typically provided in any MD&A or Qtrly Activities Rep. Ask yourself what you want to benchmark. EXAMPLE: In Q3/19 Kirkland Lake reported an AISC of $562/oz Au sold. Phenomenal, more than $1,000 profit! But are

15/18 they mining efficiently & do they have a competitive mining cost? Well yeah, at first glance they do, but that´s because the avg. grade was frigging 18 g/t! How long will they keep that up for? What if the grade drops by 50%? Obviously the AISC would double. But what does

16/18 really mean in terms of their management controls?
Do some math (see below) & it turns out that the AISC for the Q was in fact $343.09/t! So while they are printing money, they´re actually not being very cost efficient (per tonne) at all compared to other mines of similar

17/18 depth and size. There is one I know v. well that is also very marginal at current prices, the same depth & has much more o/head than Fosterville like pumping 10x more water that has an AISC of just $110/t. Suddenly the grade becomes important, but not in the way we think:

18/18 When the grade is high miners waste more money, when the grade is low they become very efficient! A great rule of thumb - And this is why bench marking is important. It is critical to your portfolio to try and learn what is driving change in the investments you make.

Post script: You may have noticed I did not look into KL's direct operating costs. Because I don't care. Total cost to produce total revenue is what is important. Including the cost to "sustain" a mine. Any project /expansion capex is normally well highlighted & easy to deduct.