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Introduction
Gold is undeniably one of the hottest topics in today’s mining. Despite the drop in value for many other mining commodities, such as lithium, nickel, and coal, to name a few, the gold price has continued to soar to record highs. It comes as no surprise that a significant amount of effort is being put into evaluating gold projects – new, current, and even those that were once deemed unattractive from a project value perspective.
In our latest blog, we explore the factors that make gold mining projects attractive and the challenges that may prevent a project from getting over the line despite the continued rise in gold prices.
The Gold Extraction Process
Gold extraction is a long and complex process, from the excavation of the ore from below the ground using various techniques. One of the most common metallurgical processes used for gold recovery is the Carbon-in-Pulp (CIP) / Carbon-in-Leach (CIL) technology.
1 A simple flowsheet for the CIL process is illustrated in Figure 1 below.
Figure 1: Carbon-in-Leach Process Flow Chart
What Drives the Mining Project’s Value?
Throughout the cycle of gold production, various factors contribute to the overall value of the project. These factors often directly affect the projected cash flow.
Listed below, in no particular order of importance, are some of the most common parameters that feed into the assessment of a mining project's value.
1. Commodity Price – In the context of gold, the universal unit for pricing is US$ per ounce of gold (US$/oz). In the last 5 years, the gold price has more than doubled from as low as ~US$1600/oz to as high as ~US$3600/oz. It is no wonder that a project 5 years ago that was assessed as being marginally profitable or even non-profitable could have flipped in today’s market gold price.
2. Foreign Exchange Rate (FOREX)
3. Grade – Grade is defined as the concentration of gold within a rock mass. The higher the grade, the better the project value becomes.
4. Geology – Among all the factors that will be discussed in this blog, Geology is one of the most important ones, if not the most important. It defines the physical properties (lithology) of the rock mass, which provides answers to the following:
- What types of rock host the gold deposit?
- Is it vein-type and disseminated, or massive and conglomerated?
- How deep or shallow is the gold mineralisation?
- What structures are present within the deposit (faults, cracks, folds, intrusions, etc.)
Further information can be derived from the answers to the above questions, such as, but not limited to, the following.
a. Mining Method – Open-pit or Underground (if Underground, there are different methods of underground mining).
b. Mining Recovery and Dilution – Dilution is defined as the mixing of waste material with the mining of ore. Higher amounts of dilution are often expected from disseminated types of mineralisation, which ultimately decreases the ore grade and increases the processing cost. On the other hand, Mining Recovery refers to the portion of ore that is recovered during mining and is influenced by a variety of factors, such as the mining method, the drill-and-blast techniques, equipment selection, and the overall mining hygiene.
c. Equipment Selection – A lot of factors contribute to the selection of equipment that will be used to mine the deposit. Usually, smaller gears are used to minimise dilution, but not to the extent of compromising productivity.
d. Process Plant Design – A series of metallurgical test work is performed to analyse the results and determine the most optimal configuration.
e. Geotechnical parameters – The physical characteristics of the rock mass also influence the mine design guidelines. For example, in an open-pit context, fractured and weaker rock mass requires flatter walls, which results in more waste materials mined and therefore higher costs.
All these factors under Geology also greatly impact the overall project costs, and ultimately the project value.
5. 2 Capital and Operating Costs
Like the other factors mentioned above, the capital and operating costs for a mining project, particularly open-pit, are generally influenced by the following:
- Deposit characteristics
- Mining Method
- Processing complexity based on ore mineralogy
- Project location and accessibility
- Regulatory Requirements, etc.
The major capital components of an open-pit mine development include:
- Mining and non-mining equipment
- Processing facilities, Plant Design (capacity, process flow)
- Pre-stripping and overburden removal
- Initial bench establishment and road construction, etc.
The major operating cost components of an open-pit operation include:
- Manpower
- Flights and accommodations
- Equipment mobilisation and demobilisation
- Drill-and-Blast (drills, explosives, storage, etc.)
- Diesel
- Grade Control
- Processing costs
- Selling costs
6. License to Explore or Operate – This component of the mining project development tends to be the most overlooked when, in fact, a great deal of time, effort, and money is spent on ensuring that all requirements relating to environmental and social approval are secured.
7. Royalty – In simple terms, a royalty is a portion of the company’s earnings that is paid by the company to the royalty owner in exchange for an upfront agreed amount given to the mining company, usually used as project capital. In most cases, the royalty owner is the government
8. Resource Classification – For publicly listed mining companies that are trying to attract investors to develop their mining project, the resource classification plays a vital role. For resources to be classified as either proven or probable ore, they must fall under measured or indicated resource classification.
Summary
In Summary, all these parameters discussed contribute to the economic assessment of a gold mining project, and although the gold price has one of the biggest impacts, the value of the project does not solely depend on it.
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