You asked about the ongoing development costs and their impact on overall profitability. I replied with the point that as most development activity is in mineralised ore and is fed to the mill and blended with stope ore, there is a recovery of gold from that development ore that off-sets a proportion of overall development costs. I also made the point that milled development ore is expensed and forms part of overall cost of sales.
The issue then becomes, 'what proportion of development costs is NOT recovered and is therefore an added sustaining cost to the business'? Here is my attempt to put some reasoned figure to that question.
Firstly, one has to make some assumptions:
Mine throughput: long term level of 2,500tpd = c. 830ktpa at average of 83 full days per quarter.
Stope ore to Dev ore ratio: 70:30
Grade of Dev ore: 50% of stope ore (given the c. 100% average greater volume mined in dilutive sterile rock).
Costs/t milled: US$90/t (long term average, although FY14 was US$78/t computed from cash flow).
Development costs: US$36m pa
Mill recovery: 92% (average over 2009 - 2013)
That leaves stope grade as the main variable to be applied.
At 830ktpa, stope ore will be 581kt and dev ore will be 249kt.
The blended head grade reported for the June quarter was 4.99g/t which implies a stope grade of 5.87g/t and a diluted dev grade of 2.94g/t. I will use these grades as the minimum and then show the resultant numbers for possible stope grades of 7g/t, 8g/t and 9g/t.
At stope grade of 5.87g/t:
Annual recovered oz from stope ore = 100,889 (ie stope tonnage x grade x recovery/31.1).
Annual recovered oz from dev ore = 21,619 (ie dev tonnage x grade x recovery/31.1)
Overall head grade = 4.99g/t
Overall production = 122,507oz
OP costs (expensed) = US$74.7m (ie cost/t milled x total ore throughput)
Proportional cost of dev ore milled (expensed) = US$22.41m (ie cost/t milled x dev ore milled)
Cost/oz of dev ore = $1,037
Capitalised portion of development expenditure = $13.59m (ie total ($36m) - expenced ($22.41m)
Therefore, sustaining cost of development = $111 per production oz ($13.59m/122,507).
At stope grade of 7g/t
Production = 146,091 oz
Cost/oz of dev ore = $869
Sustaining cost of development = $93/oz
At stope grade of 8g/t:
Production = 166,961 oz
Cost/oz of dev ore = $761
Sustaining cost of development = $81/oz
At stope grade of 9g/t:
Production = 187,831 oz
Cost/oz of dev ore = $676
Sustaining cost of development = $72/oz
All subject to a reasonable degree of variance of course. But I hope that the above at least gives you some 'food for thought' regarding the ongoing sustaining cost of unavoidable development at Co-O.
AIMHO of course
CPDLC
MML Price at posting:
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