That was the conundrum Australia’s beleaguered gold miners had to grapple with in the second half of the 1990s. In early 1996, gold bullion was trading at more than $US400 an ounce. Last year, the metal touched a low of $US252/oz.
That $150/oz price fall (since mitigated by a minor recovery) is the grim statistic that has led to a radical rethink by Australia’s gold industry.
Once upon a time gold miners were starry-eyed optimists — a strong price rally was always just around the corner. Nowadays, gold mines accept low prices (and rising input costs) as a fact of life, and have tried to react accordingly.
Each mine has different circumstances, but there have been some common responses to the tough conditions. The most obvious is the closure of marginal orebodies, often accompanied with staff shedding. To remain profitable, cut-off grades have had to be pushed up, even if it means curtailing overall mine life.
For instance, in mid-1997, Newcrest Mining was forced to cut a swathe through the then 25 million tonnes of low-grade open cut reserves at the Telfer mine in WA’s Pilbara region and drastically scaled back output.
“All the higher-cost reserves were cut out,” said Pieter Greeff, Newcrest’s executive general manager for WA operations. “At the time we were working with $A550/oz gold prices. Now we are using $450/oz as the gold price. Anything that was close to $450/oz we said ‘there is too much risk, we won’t do it’.”
Greeff said Newcrest also attempted to improve its haul roads by rationalising marginal pits. “We started filling in some of the pits, because we realised that, unless the gold price is at $650/oz, we will never mine them.”
Other mines have adopted various strategies, ranging from more productive mining methods, lower cost treatment options and owner mining.
The most prominent example of the latter is the Kalgoorlie Super Pit, which recently spent $100 million swapping over to an owner mining fleet. Joint owners Normandy Mining and Homestake Mining predict they will cut cash production costs by $A17/oz by running their own fleet.
Super Pit operator KCGM has also significantly reduced underground production. Staff levels on the ageing Mount Charlotte operation have come down from 230 to just 80, and Normandy has stated the mine will close by year-end. But Super Pit general manager, John Shipp, said KCGM was “looking at options to see if we can extend it further”
WMC, too, has quit most of its underground mines at Saint Ives, choosing instead to focus on contractor mining of low-grade open cuts. Of approximately 500 employees at St Ives, only 60-70 are WMC staff. The remainder are employed by five major contractors: Macmahon and Thiess (open cut mining), GBF (underground mining), BGC (haulage) and Ausdrill (exploration drilling).
As well as straight cost pressures, the St Ives strategy was dictated by WMC’s unacceptable fatality rate at its underground operations during the second half of the 1990s.
“We had some older mines such as Victory, which had been in production for 17 years,” said Richard Laufmann, general manager of St Ives. “They were coming under a lot of cost pressure, as a result of a fair bit of effort to massively improve the working standards at our operations.
“And that was really driven by the Elimination of Fatalities taskforce. We still have some great underground resources to eventually kick off. But starting afresh, we know what we are getting into, and the mines can be set up appropriately.”
