Ann: Outstanding High-Grade Intercepts Expand Cardinia Hill, page-18

Hello pidgey

A decision to mine will be based on a reserve, which will be higher grade / cheaper to mine ore. They are looking at an average production cost of around 1500 an ounce. A cutoff is not an average remember. There will be some really cheap ounces, but when they plan the pits they have to decide how much of the lower grade / expensive to dig and process ore to include, ie as the margin drops where do you stop digging? The mining plan will have a cutoff around $2100 I guess, so the margin on the last few ounces might be only a few $100 per ounce on paper ... could be more by the time they get to digging it a few years into the plan.

That is not the whole story though, because there will be an initial mining plan but also a hope for a mine life of 20 years. Gold mining over the years has ended up chasing lower and lower grades / expensive to dig or because all the rich easy to dig ore has been dug up already. Making the resource (not reserve) cutoff $2600 (cutoff remember, not average) allows investors to have a better idea what ore there is which could be mined in a decade or more. Gold was actually above $2700 when they made that decision, so it was quite conservative. It is a mistake IMHO to be too focussed on short term gold prices because the fact is it takes time to dig up and process ... Kin would be doing really well at 100K Oz per year, so a gold investment is an investment in the medium long term gold price, if you plan to stay for production. That $2600 ore on the margins of the pits won't be dug until well into the 2030s ... it won't be sold at today's gold price .