chatree costs

I was originally expecting costs at Chatree to fall this quarter, but it didn't eventuate. While production was up 49%, Total Cash Costs were up by 4% and Total Production Costs were up by 5%. The tables on pages 4 and 9 of the quarterly explain most clearly why.

1. Mining Costs: down 4% (good)
2. By Product Credit: down 8% due to gold grade increasing by 15% while silver grade increased just 5%. So therefore there is less silver per oz of gold, ie less by-product credit. The Chatree reserves are 0.94g/t gold and 8.6g/t silver, compared to this quarter's production of 0.94g/t and 11.6g/t, so by-product credits are likely to fall by 26% over time, unless the silver price rises.
3. Royalties were up 24%, I still don't understand why.
4. Depreciation up 10%, I guess the new plant has higher depreciation since it is priced in 2011 dollars, or that the old plant's depreciation peaked long ago while the new one has full depreciation.

Comparing the September quarter (before plant upgrade) with the March quarter is a fair comparison (except that grade improved 16%, and by-product grade fell 13.5% within those 6 months).

SEP'11: $701/oz Total Production Cost, 14,428oz produced, margin of $963 (at today's gold price US$1664/oz), EBIT $14m
MAR'12: $780/oz Total Production Cost, 38,721oz produced, margin of $884 (at today's gold price US$1664/oz), EBIT $34m

Total Production Cost per oz up 11% (primarily due to by-product and royalty) but EBIT up 142%. That seems like a worthwhile upgrade to me.

Depreciation in SEP'11 was $1.3m, in MAR'12 it was $6.0m ($1.3m for the old plant, $4.7m for the new plant). $4.7m per quarter would have it fully depreciated after 5 years, but there are 10 years of reserves, so I guess the depreciation is skewed to the early years and will decrease over time. This falling depreciation cost should offset the falling by-product grade.

We're sitting a little below the 50th percentile at Chatree with $780/oz Total Production Cost. Not great, not bad, but a reasonably safe margin of $884/oz (113% profit margin on total costs).