Copper-gold deposits to help gold miners overcome depletion dilemma
……………Copper-gold porphyries and sedimentary copper deposits offer both size and profitability.
They are two of the few deposit types containing precious metals that have both the scale and the potential for decent economics that a major mining company can feel comfortable going after to replace and add to their gold or silver reserves.
Porphyry orebodies are usually low-grade but large and bulk mineable - they typically contain between 0.4% and 1% copper, with smaller amounts of other metals such as gold, molybdenum and silver.
There are two factors that make these kinds of deposits so attractive. First, by focusing on profitability and mine life instead of solely on grades, lower costs realized by economies of scale can offset the lower grades. This results in almost identical gross margins between high- and low-grade deposits. Low-grade can in fact mean big profits for mining companies – copper-gold porphyries offer both size and profitability.
The second factor affecting the profitability of these often immense deposits is the presence of more than one payable metal ie. for gold miners using copper by-product accounting, the cost of gold production is usually way below the industry average. (the copper credits off-set the gold mining costs per ounce)
The economics of mining porphyries comes down to by-product accounting. Here’s how it works, using Barrick as an example.
As a gold miner, Barrick needs to replace its gold reserves as they’re mined out. If, instead of a gold deposit, Barrick acquires a copper-gold porphyry, by-product accounting takes place - because the deposit not only has gold but copper, maybe molybdenum, and other metals too. The copper and moly by-products are mined, processed and sold - with by-product revenues put against production costs. This allows the gold company to mine the gold at three-quarters the cost of a gold-only deposit, or half, even 100% - in which case the miner is using the revenues from by-product metals to mine gold for free!
An interesting note to AOTH readers: I made these comments in 2009, on the suitability of acquiring copper-gold porphyries as a way for gold miners to increase their reserves. So I felt some satisfaction in reading the CEO of Barrick Gold making much the same argument in an article this week in the Financial Post - 11 years later.
In mining, costs per ounce can make or break a company. Imagine Barrick not only adding to its gold reserves, but lowering its costs per ounce, to below the industry average, through the sale of by-product metals. Barrick’s financials turn up rosy, and CEO Bristow ends up looking like a hero! ………
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