Understanding Australian gold industry geoscience and mineral economics - Ulrich et-al - Dec 2016 - Centre for Exploration Targeting

Understanding the
Sustainability of the
Australian Gold Industry:
Where does Geoscience
meet Mineral Economics?
• Sam Ulrich12
• Matt Kanakis3
• David Groves1
• Steffen Hagemann1
• John P. Sykes14
• & Allan Trench156
• 1. Centre for Exploration Targeting, The University of Western Australia
• 2. Ravensgate Mining Industry Consultants, Australia
• 3. KPMG, Australia
• 4. Greenfields Research, United Kingdom
• 5. Business School, The University of Western Australia
• 6. CRU Group, United Kingdom
• CET Corporate Members Day December 2016

How about we aim to find and mine
‘better’ ore?
CET Corporate Members Day December 2016

But what is better ore? Higher grade?
Costs($AU)
Grade (g/t)
Higher grade = lower cost mines
Lower grade = higher cost mines
Source: Kanakis (2014)

When grades go up, costs go down…
at individual mines
0
200
400
600
800
1000
1200
1400
1600
1800
0 1 2 3 4 5 6 7
Pajingo
0
200
400
600
800
1000
1200
1400
1600
0 2 4 6 8 10
Paulsens
Grade g/t Grade g/t
CET Corporate Members Day December 2016 (Ulrich 2016 unpublished data)
AISC A$/oz AISC A$/oz

…..again
Grade g/t Grade g/t
0
200
400
600
800
1000
1200
1400
1600
1800
0 2 4 6 8 10 12 14
Andy Well
0
200
400
600
800
1000
1200
1400
0 0.5 1 1.5
Mt Rawdon

and again…
Grade g/t Grade g/t
0
200
400
600
800
1000
1200
0 5 10 15 20
Kundana
0
200
400
600
800
1000
1200
1400
1600
0 2 4 6 8
Tanami

with some interesting exceptions too…
Grade g/t Grade g/t
0
200
400
600
800
1000
1200
1400
1600
0 0.2 0.4 0.6 0.8 1
Boddington
0
200
400
600
800
1000
1200
1400
1600
0 0.5 1 1.5 2 2.5
NullagineAISC A$/oz AISC A$/oz

Or there are ‘just grades’…..

At the portfolio level however - it is more
complex than that
0
200
400
600
800
1000
1200
1400
1600
1800
2000
0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00
AllinSustainingCosts($AU)
Operating Grade Q4 (g/t)
Open Pit Underground

Initial investigation: Gold costs and
geology (Kanakis, 2014)

Back in 2013 it was all about ‘costs’
0
2
4
6
8
10
12
1989 1994 1999 2004 2009
Millionsofounces
Australian Production of
Gold (1989-2013)
Source: USGS and Taggart (2013)
2013 Gold Industry Paradigm
• Rising mining costs;
• Flat production growth;
• Flat or falling prices;
• Weak shareholder returns.
• Interest was in linking costs
and geology at a higher-level
than ‘deposit-scale’ so that we
could begin making predictive
statements about what types
of deposit generally are mined
with lower costs.
0
200
400
600
800
1000
1200
1400
1600
1800
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
US$/ounce
Increases in costs over
time
Growth Capex Cost
All-In-Costs
Gold Price

Study covered all of Australia (& NZ)

All the famous gold geological provinces
Q4 2013
Australia & NZ
gold production
by Geological
Province
% of Total Gold
Production
No. of Operating
Gold Mines

Initial results: There are gold cost-
geology linkages (Kanakis, 2014)

Sedimentary vs. igneous host rock unclear
Sedimentary
Igneous
Neither
Q4 2013 Australia & NZ
% of deposits by host
rock in each cost
quartile
Quartile refers to cost position on the AISC cost curve; Q1 =lowest cost 25% etc

…plutonic over volcanic igneous?
Volcanic
Plutonic
Neither
% of deposits by host
rock in each cost
quartile
Quartile refers to cost position on the AISC cost curve; Q1 =lowest cost 25% etc

Does mineralisation-style matter?
Increasing dispersion of mineralisation
Increasingthicknessofmineralisation
Quartz reef /
lode / lens
Quartz
tension vein
Uneconomic thin
quartz veins
Thick laminated
quartz veins
Ladder quartz
veins
Thin stockwork
vein system
Thicker veins
in shear zone
Dispersed breccia
hosted mineralisation
LODE / VEIN STYLE MINERALISATION
ALTERATION ZONE & DISSEMINATED SULPHIDE HOSTED
MINERALISATION

Disseminated mineralisation is important
2013 (4th Qtr) % of deposits
by mineralisation style in
each cost quartile
Vein / Reef Style
Disseminated Style

Refractory mineralisation may also matter
– or related by-products
2013 (4th Qtr) Australia & NZ
% of deposits by free-milling
vs refractory ore in each
cost quartile
NB: Needs more work - by-products
likely significant in sulphide ores
(e.g. copper).
Free-milling
Refractory

Does deposit geometry matter?
cylindrical
equidimensional

Equidimensional geometry matters too
Cost curve by deposit
geometry
NB: Gently dipping
planar deposits also give
lower costs than steeply
dipping planar deposits.
Planar Deposit
Cylindrical Deposit
Equidimensional
Deposit

Initial implications: Geology
matters! (Kanakis, 2014)

Grade is engineered away; geology is not

Initial study weaknesses: Not big
enough… (Kanakis, 2014)

What about deposit type? We don’t know
• Orogenic and epithermal
deposits gave variable results;
• Porphyries were low cost;
• Not enough data for IOCG
deposits;
• There is not much to go with
here…
• This was effectively a study of
the economics of orogenic gold
deposits.
0 10 20 30 40 50
Orogenic
Epithermal
Porphyry
VHMS
IOCG
No. mines in the study by deposit type

Mine maturity & cost cycle unconsidered
Source: Kanakis (2014); Trench & Sykes (2014)

Expanded investigation: Gold costs
and geology (Ulrich et al., 2016-19)

In 2016 we’re back to focusing on growth
Source: USGS; Perth Mint
2016 Gold Industry Paradigm
• Falling costs;
• AUD weaker;
• Strong returns;
• Focus on production growth;
• Rise of Northern Star,
Evolution etc.
• Discovery of Gruyere
• New mines; Andy Well etc.
• But how long can this
last?
7
7.5
8
8.5
9
9.5
10
2006200720082009201020112012201320142015
Millionsofounces
Australian Production of
Gold (2006-2015)
1,000
1,200
1,400
1,600
1,800
2,000
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Millionsofounces
Gold Price AUD vs USD
(2011-2015)

But running short of ‘quality’ ore
• Australia & NZ good at growing ‘resources’
(i.e. EDR), now often 5-35 years worth;
• No dramatic increases in ‘reserves’;
• Many of Australia’s best mines are its oldest;
• 14% of gold is mined at operations with less
than 2 years of reserves…
• 38% of gold is mined at operations with less
than 5 years reserves…
• Average reserve life is 5.4 years.
• More high quality (i.e. reserve standard) ore
discoveries required – both greenfield and
brownfield;
• we’re trying to understand ‘high quality’…
Source: Ulrich et al., (2016)

Hypothesis remains: grade is not quality
1st Quarter 2016 Australia
& NZ
All-in-Sustaining Cost
(ASIC) vs Gold Grade

Causality emerging: Focus on mining
Grades and costs correlate at the processing stage, but not the mining stage, suggesting that the geological factors
influencing processing are less important than those that influence mining (e.g. geometry).
ASIC Mining Cost vs Gold Grade
ASIC Processing Cost vs Gold Grade

More analysis to come…
• Longer time series of
analysis to confirm initial
findings;
• And account for mine
maturity and cost cycle;
• Deeper investigation into
causality linking geology and
cost in gold mining;
• Wider consideration of non-
technical industry factors
that may be important.

Conclusions: Where does geoscience
meet economics?

If Grade is KING; Geology is the ACE
• Equidimensional deposit;
• With disseminated
mineralisation;
• Hosted in plutonic igneous rocks;
• Potentially with by-product rich
refractory ore;
• And maybe some high grade
ore…

THANK YOU
• CONTACT DETAILS
• Sam Ulrich: sam.ulrich@research.uwa.edu.au
• Matt Kanakis: mkanakis@kpmg.com.au
• David Groves: di_groves@hotmail.com
• Steffen Hagemann: steffen.hagemann@uwa.edu.au
• John P. Sykes: john.sykes@research.uwa.edu.au
• Allan Trench: allan.trench@uwa.edu.au

Further reading
• Ulrich, S., Kanakis, M.D., Groves, D., Hagemann, S., Sykes, J.P. & Trench,
A. 2016. Is Grade King in Gold? A Preliminary Analysis of Gold Production
Costs at Australian and New Zealand Mines. AusIMM New Zealand Branch
Conference. Wellington, New Zealand. 4-6 September.
• Kanakis, M.D. 2014. Geological Factors that Influence the Cost of
Production in Currently Operating Gold Mines within Australia and New
Zealand. BSc (Mineral Geoscience) Honours Thesis. The University of
Western Australia.

Understanding Australian gold industry geoscience and mineral economics - Ulrich et-al - Dec 2016 - Centre for Exploration Targeting

Understanding Australian gold industry geoscience and mineral economics - Ulrich et-al - Dec 2016 - Centre for Exploration Targeting

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