GOLD MINING INDUSTRY: Fuel Costs Explode Over The Past Decade

The gold mining industry literally devours energy to produce an ounce of gold.  In the past decade, fuel consumption at the top gold miners more than doubled, but the actual energy cost grew at a much higher rate.

The huge increase of diesel consumption at the top 5 gold miners is due to several factors.  As ore grades continue to decline, the gold mining companies need to extract more ore to produce the same amount of gold.  Thus, the massive haul trucks that transport this ore burn more diesel in the process.

Furthermore, as open-pit mines age, they deepen which forces the haul trucks to travel longer distances at a higher grade.  One of the largest haul trucks in the world is the Caterpiller 797F.  These haul trucks are massive and can transport 400 metric tons of ore in a single trip.

CAT 797 pic

The CAT 797F has a standard 1,000 gallon tank and has options for a 1,500 and 2,000 gallon tank.  The graphic below (from the Engineering Network) provides some of the costs and statistics of the CAT 797:

CAT 797F

The CAT 797F costs $5 million a pop and uses six tires that cost $42,500 a piece.  Here is a fascinating cost factor that I found quite surprising.  According to an article in the Engineering and Mining Journal:

…studies show tire costs can exceed 25% of total haul-truck operating costs per ton; and total tire service and replacement costs over the useful service life of a haul truck can exceed the original purchase price of the truck.

Basically, tires cost just as much or more than the haul truck itself.  That is an amazing statistic that just goes to show how expensive it is to mine gold.

In addition, you will notice the CAT 797F has an excellent fuel consumption rating of 0.3 miles per gallon…. which is a little more than 3 gallons per mile.  To get an idea of how much more diesel the gold mining industry consumes today, let’s look at the following chart.

Top 5 Gold Miners Gold Production & Diesel Consumption

Diesel consumption per ounce of gold produced more than doubled from 12.7 gallons per ounce in 2005 to 25.8 gallons per ounce in 2013.  You will notice that the diesel figures for 2012 and 2013 are the same.  At first I thought we would see an increase in 2013, but as companies started cutting back on construction of new mines as well as high-grading (extracting higher grade ore), consumption remained flat.

We must remember, these gold mining companies consume diesel in the transportation of their waste rock and ore, mine construction and to a lessor extent… electric generation when connecting to the grid is not possible or economical.

Diesel consumption per ounce of gold produced increased in 2013 at Barrick and Newmont, but fell at AngloGold, Goldfields and GoldCorp.  However, total diesel consumption in the group increased from 583 million gallons in 2012 to 591 million gallons in 2013.  The reason the gallons per ounce figure remained the same in 2013 as it was in 2012 was due to an additional production of 300,000 oz of gold.

While the top 5 gold miners doubled their diesel consumption per ounce of gold produced since 2005, their actual energy cost increased a great deal more.  The next chart reveals just how much these costs increased.

Top 5 Diesel Consumption & Cost Per Ounce

In 2005, these gold miners spent an estimated $30.48 of diesel per ounce of gold produced.  This figure doubled by 2008 to $69.92 when the price of a barrel of oil skyrocketed to $145.  When the recession hit in 2009, causing the price of oil to plummet, diesel costs for the gold miners declined as well.

Then over the next three years, diesel costs per ounce increased significantly from an estimated $55.91 in 2010 to $102.43 in 2012.  Even though the figure in 2013 is slightly lower than 2012, costs have more than tripled since 2005.

I estimated these figures by using the average annual price of diesel stated by the EIA – The U.S. Energy Information Agency.  Here is their data table:

U.S. Diesel Prices

The price of gallon of diesel was $2.40 in 2005, hit a peak of $3.97  in 2012 and averaged $3.92 in 2013.  So, not only have the gold miners doubled their diesel consumption for each ounce of gold produced (2005-2013), the price of diesel increased 63% during the same time period.

Now, if we go back just a few more years and look at the rate of change since 2003… its staggering.  I don’t have the actual diesel consumption figures for the top 5 gold miners for 2003, so here I provided some estimates below:

2003-2013 Estimated Change In Diesel Consumption & Cost

2003 = 12 gallons per ounce (conservative estimate)

2003 = $1.51 price of gallon of diesel

2003 = $18.12 diesel cost per ounce

2013 = 25.8 gallons per ounce

2013 = $3.92 price of gallon of diesel

2013 = $101.14 diesel cost per ounce

What a difference a few years make…aye?  Here we can see that the price of diesel in 2003 ($1.51) was almost a Dollar less than it was in 2005 ($2.40).  I was conservative and estimated that diesel consumption declined to only 12 gallons per ounce in 2003 compared t0 12.8 gal/oz in 2005.

Thus, the actual estimated diesel costs per ounce increased more than five times since 2003… actually 5.6 times.  Which means, the top 5 gold miners spent on average, $101 on diesel for every ounce they produced in 2013 compared to $18 in 2003.

Even though this diesel cost figure only represents a small part of the overall costs to mine gold, energy still represents the largest factor in determining the value of gold.  When I say that, it goes above and beyond the additional sources of energy such as electricity a gold mining company purchases when they process and refine gold.

It’s important to realize that all the mining equipment and materials used in the gold industry are not produced out of THIN AIR in the same way the Fed creates money.  All the metals and products that go into manufacturing mining equipment are only made possible by the huge amounts of energy consumed in the process.

This is also true for the materials consumed at the mine.  For example, Barrick purchased 292,000 metric tons of lime in 2012 at its mines.  Lime is listed as a material cost on its balance sheet, but the overwhelming factor to produce lime is calculated by the energy consumed in all forms and all stages.

We must remember, lime is extracted by huge excavators and moved by huge trucks which is then transported from the quarry to the mine by more trucks.  This all consumes a great deal of energy.  Again, the value of the lime used in the gold mining industry comes from the amount of energy consumed in all forms and stages.

Lastly, we also need to consider all the human labor in all stages.  Lime isn’t extracted or transported by robots (not yet…LOL), but by humans.  Human labor is a form of energy.  So, when a reader sends me an email saying that labor is a higher cost than energy on a typical gold company’s balance sheet, I politely respond by saying… HUMAN LABOR IS ALSO A FORM OF ENERGY.

In conclusion, the gold mining industry consumes a lot of diesel to produce an ounce of gold.  As we can see, total diesel costs are rising even faster.  I am not concerned about the impact of increased diesel costs on the gold mining industry in the following years.  However,  the real threat to the industry will be a lack of available fuel supplies in the future… not the energy cost.

I will discuss this in more detail in future articles and reports.

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13 Comments on "GOLD MINING INDUSTRY: Fuel Costs Explode Over The Past Decade"

  1. see: http://www.peakprosperety.com/crash course/accelerated
    address this energy problem

  2. see– peakprosperety.com/crash course/accelerated
    this site address the energy problem

  3. In the US, believe mining companies do not pay the retail diesel price. They pay the off-road diesel price that does not include certain taxes. FWIW, believe this off-road diesel is called Red Dye Diesel.

    • In such a detailed report,as it was, you must give the gentleman the benefit of the doubt that he used the industrial price when calculating, you did.

    • marks,

      You are correct. NY spot diesel is lower than the retail price. I should have used the NY spot price for the one chart. However, the RATE OF CHANGE is still the same since 2003 and 2005.

      Actually, I just inputted the new Los Angeles Spot Diesel prices into the chart and the RATE OF CHANGE is actually much greater. Instead of an increase of 5.6 times from 2003-2013 using the retail diesel price, the increase using the wholesale LA spot price shows an increase of 6.6 times from 2003-2013.

      steve

  4. Great report on an aspect few take into consideration. Thanks for sharing your work, I appreciate it.

  5. Just ridiculous. What a waste of diesel and energy. just shut down the miners, all of them. And eliminate gold altogether from anyone ever holding any of it for any reason at all. What a joke. Yeah yeah yeah, I know. Fiat sucks. But if you want sound money I can fix it for you in five minutes without gold: Every congressman loses his job if we don’t have balanced budgets at the end of the year. There. fixed it for you. Meanwhile, stop wasting precious energy on something as worthless as gold.

    • Sounds good for a moment…fire all the congressmen. Won’t happen and would rapidly crash the dollar and every fiat currency tied to it in the world [all of them] if it did.

      Our system is based on creating ever-increasing debt.

      • The role of money and gold could be reduced through reduction of senseless international trade and returning to local production of basic things. For example, why to transport strawberries form Spain to Estonia (more that 3000 km) when they can be grown locally?

    • Partial Quote from your post : ” . . . . But if you want sound money I can fix it for you in five minutes without gold: Every congressman loses his job if we don’t have balanced budgets at the end of the year. There. fixed it for you. Meanwhile, . . . ”

      Great comment ! And your solution will work. In theory and in practice. But ( as I am sure you are aware ) Congress, dolts that they all are, is not the problem. WE ARE THE PROBLEM. We do not, we cannot, and we have not voted for people who propose to do what you suggest.

      We have trained almost every one ( at least 99% ) of the Congressional Weasels to dance to our tune or else. So they do. We get the Congress we vote for, the one we want, and the one we deserve.

      So it goes !

      So I will edit your post just a bit, for the sake of my reply, “Meanwhile, since Congress is populated almost exclusively by dolts who have no fortitude or moral courage — and hence will NEVER DO THE RIGHT THING . . . . MEANWHILE, my stacks will keep me safe from Government predations.”

      I do think your solution will work. But it cannot happen here. EVER !

      SnowieGeorgie

      • “Great comment ! And your solution will work. In theory and in practice. But ( as I am sure you are aware ) Congress, dolts that they all are, is not the problem. WE ARE THE PROBLEM. We do not, we cannot, and we have not voted for people who propose to do what you suggest.”

        The people who would fix the problems don’t run for congress. Or if they do they are quickly taught how to fit in. Just ride the gravy train and give in to your inner psychopath.

        http://www.caseyresearch.com/cdd/they-walk-among-us

    • Get rid of gold and balance budgets? What would a good Marxist say about that?? Socialism Works Fine.. Until you Run Out of Other People’s Money!!

      • ” Until you Run Out of Other People’s Money!!”

        which exactly is going on in Western Europe – the treasures looted form the colonies after 70 years come to an end… the history repeats

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