The Big Squeeze Continues in the Top Gold Miners

The results are finally out and 2012 proved to be another record year for the continued squeeze in the top 5 gold miners.  Not only did gold production decline 1.3 million ounces from the top 5 year-over-year, their average yield dropped another 6%.  As gold yields continue to decline, it causes more stress for the mining companies.  Thus, it takes more energy to produce the same or less gold.

This is indeed the major problem facing the gold mining industry going forward.  Below we can see just how much average gold yields have declined in the top 5 gold miners (Barrick, Newmont, AngloGold, Goldfields & GoldCorp):

Top 5 Gold Miners Production & Average Yield

In 2005, the top 5 miners were producing gold at an average yield of 1.68 grams per tonne (g/t), but by 2012, it had fallen to only 1.22 g/t.  In just seven years the average yield declined 27% or nearly 4% per year.  However, from 2011 to 2012 the average yield fell an additional 6%

The real problem with declining ore grades & yields is how much gold production is lost every year.  If we take the top miners gold production in 2005 which stood at 25.2 million oz and figure a decline in average yield of 27%, we come up with a loss of 6.8 million oz in that seven-year time period (nearly 1 million oz loss per year).  Which means the miners either have to mine and process more ore, or they have to add new mining projects to offset this fall in average yield.

This next chart shows the change in total processed ore & average yield since 2005:

Top 5 Gold Miners Processed Ore & Average Yield

In 2005, the top 5 miners processed 522 metric tonnes (m/t) of ore to produce 25.2 million oz of gold, but by 2012 they had to mill and process an additional 55 m/t  or a total of 577 m/t, while their overall production declined to 22.6 million oz — a difference of 2.6 million oz.

According to GFMS 2013 Gold Survey, the largest increase in cash cost for the gold miners from 2011 to 2012 was due to the decline in gold grades.  Here we can see that declining ore grades added another $41 an ounce to the total cash cost in 2012:

GFMS Gold Cash Cost Ore Grades Increase

Even though I don’t believe cash costs are a good metric to determine the overall profitability of a mining company, this is a perfect example to show just how much declining ore grades can impact the miners balance sheet.

As, I mentioned in the beginning of the article, as ore grades decline it takes more energy to produce the same or less gold.  This next chart takes the last three and puts it all into perspective.  In just 6 years, diesel consumption per ounce of gold production has increased a staggering 72% in these top five gold companies.

Top 5 Gold Miners Production & Diesel Consumption

Furthermore, while diesel consumption has increased on average 12% per year, overall gold production has fallen.  In 2005, we can see the gold miners only burned 12.7 gallons of diesel on average to produce one ounce of gold.  However, by 2011, this increased to 21.8 gallons for every oz of gold produced.

I would like to state that when these companies report their diesel-fuel consumption for the year, it covers all aspects of their operations.  Some of the diesel is used for building out new mines while a few companies such as Barrick and Newmont have copper producing mines.

Regardless, diesel consumption is increasing in all of the gold miners — even those who haven’t been sidetracked into the base metal mining of copper.  A good example of this is Goldfields who has the highest average gold yield of the group.

GoldFields Diesel Consumption 2005-2011

The data from this chart shows that Goldfields has more than doubled their diesel-fuel consumption for each ounce of gold produced since 2005.  As I stated, Goldfields has the highest average ore yields of the group.  In 2005, Goldfields produced 4.2 million oz of gold at an average yield of 2.74 g/t while consuming 4.9 gallons of diesel per gold oz.    But by 2011, the difference was quite notable.

Goldfields average yield declined 33% since 2005 to 1.83 g/t (2011), increasing their diesel consumption to 10.6 gallons per oz on falling gold production of 3.2 million oz.  What a change of events.  Goldfields had to more than double their fuel consumption to produce 24% less gold in the six-year time period.

We must remember, there is another factor that also increases diesel consumption at these mining companies other than falling average yields.  As open-pit mines age, the haul trucks have to move longer distances as the mine deepens to remove the same amount of ore.

Few realize that during the late 1800’s the average ore grades of the world’s gold mines were 20-25 g/t on average — nearly 2o times larger than the present rate.  Today the gold miners are left to basically mining gold dust.

Thus, falling average yields are the BIG SQUEEZE taking place on the gold miners balance sheets.  That being said, this may not be the most critical problem facing the gold miners in the future.  Even though costs will continue to increase as average yields decline, the much larger issue may be the availability of diesel-fuel supplies in the future.

The world seems to be clueless of what is really taking place in the world’s oil industry.  For those who do not believe in Peak Oil, there are actually two additional factors that are already causing stress in mining industry and world’s economies:

1) the Decline of Net Oil Exports

2) the Falling EROI – Energy Returned on Invested

Even though the world has not yet peaked in total liquid energy production, net oil exports most certainly have.

I will explain more about these factors in future posts and articles..

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29 Comments on "The Big Squeeze Continues in the Top Gold Miners"

  1. It may be of interest in connection with the successful juniors.

  2. it becomes exponentially difficult when the grade drops towards 1g/ton and below. i read it somewhere on the internet.

    we’re getting close to the 1g/ton magic number.

    • Even though declining gold yields make it more challenging for the top gold miners, they will be less affected by peak oil than the base metal mining industry

      Furthermore, declining gold yields are actually very bullish for much higher gold prices in the future.

  3. Ron Estrada | May 23, 2013 at 3:27 pm |

    Many thanks for your continual great reports. The world will largely be shocked by peak oil and the coming rise in gold and silver. Keep up the great work! Ron

  4. Yeah thanks Steve good work as always & enjoy this site!

    Cannot help but wonder what the ramifications of Kennecot and Barricks Pascua-Lama will be over the next couple of years.

    • Ron & 4 oz… thanks for the replies.

      First… yes peak oil is a big problem most are unaware. However, when we factor in the declining net oil exports as well as the falling EROI is makes a bad situation much worse.

      Secondly… I look forward to Rio Tinto’s Q2 2013 report. I don’t think Kennecott will be producing the amount of metals they stated in their news release of a few weeks ago. As for Pascua-Lama, I think it may be a DEAD DEAL. Barrick stated that they could go forward with the smaller mine on the Argentina side, but it would not be cost effective.


  5. Gallons of diesel per freaking ounce! Thank you for articulating this critical relationship. So let’s say $85 diesel per ounce of gold.

    So less than $23 of diesel to pull an ounce of silver out of the ground?

    Do those 30,000 drones coming to the US skies require silver?

  6. I”m also wondering if gas & diesel are priced artificially low. I mean, put a gallon in your heavy-assed truck and drive from point A to B. Then use human labor with wages to physically push the truck back to point A. That gallon of gas is like having a bunch of slaves for a few hours. $4 of paper/gallon isn’t that bad of a deal, technically speaking.

    Quick, let’s use the remaining semi-cheap oil to cart fat bastards to Wal-mart so they can stimulate the economy back to prosperity by buying fucking plastic teddy bears and broken toasters.

    • Rojello… here are some interesting statistics as it pertains to the value of a barrel of oil:

      1) a barrel of oil is the equivalent of $164,000 in the cost of human labor (based on $6.50 hr labor rate — if we assume $8.50 an hour then its more like $212,500 a barrel)

      2) a barrel of oil is the equivalent of 25,000 hours of human labor

      So, yes oil has allowed the world to have trillions of energy slaves… and it doesn’t even realize it.

      • Wow, those are staggering numbers. There’s just no substitute for that, at least at this moment in time.

        It’s like peak oil is the 1,000 pound gorilla with a hard on in the corner of the room, but none of the economists seem even remotely aware of that connection.

        Again, thanks for doing the research to put numbers on these concepts.

  7. Great work as always, much appreciated!

    One thing that I don’t get is the stated decline in Goldfields average yield of 80%, from 2.74 g/t (2005) to 1.83 g/t (2011) – that’s a decline of 33% in my book, unless I’m missing something. That’s an average decline of 5.5% a year which is more in line with your estimate for the top 5 miners of 4%.

    • hitchee…. you are correct. I normally check those figures a few times, but I don’t know how I missed that one…LOL. Anyhow you are right, Goldfields yield fell 33% in that time period not the 80%. Heck, if it fell 80%, they would be mining gold at only 0.55 g/t. I made the change…. thanks.

      By the way, GoldCorp has the lowest average gold yield of the bunch at 0.77 g/t. So they have to move a great deal more ore (Penasquito mine) to produce their gold compared to Goldfields.


      • thanks Steve!

        “Heck, if it fell 80%, they would be mining gold at only 0.55 g/t.”

        In a couple of years, when the price of gold is where we all hope it to be, they’ll be scraping that 0.55 g/t bottom of the barrel with a smile on their face! 😉

  8. UK Silverstackers | May 24, 2013 at 5:40 am |

    Whilst the consumption of diesel has increased and as you said the availability of fuel in the future is a major consideration then I guess the price of said fuel will also pose a problem, ie plenty of fuel available but at double to price. I would be interested to see the $ cost over the 5 years against the consumption also. Guess that would add to the squeeze with fuel costs increasing inconsumption and price against a dropping gold price.

    Nice work Steve, keep stackin’

  9. UK Silverstackers.. I actually believe diesel fuel availability will become a problem at some point in time. I believe the reason why the price of Brent crude increased from $38 in 2004 to $103 today is due to the decline of net oil exports that peaked in 2004-5.


  10. Cloe R. Ellah | May 24, 2013 at 7:34 am |

    Please add some calculations on the cost of alternative liquid fuels including solar-grown, algae-produced diesel equivalent that might have a better eroi than big ag’s present canola or corn.

    • Cloe… you bring up a good idea. I will discuss this in the future, however, I will say this briefly:

      1) the EROI of corn based ethanol in the USA is something like 1.3/1. Its barely positive. However, its much worse than what its ratio shows. It takes a lot of petroleum to produce that ethanol. So as the energy situation gets worse, it won’t be economical or smart to keep making ethanol with such a low EROI.

      2) I will look into the Solar-grown algae-produced diesel eqiv., however, even if the EROI ratio is higher, I believe the ability to scale up this energy source to where it would really make a difference is not possible.


  11. lastmanstanding | May 25, 2013 at 8:26 am |

    fyi…a small gold and silver mine in Troy, Mt. is laying off 100 of its 200 employees.

    For those who have never owned a business, layoffs happen if there are no orders for product, product is not profitable to manufacture or materials are not available.

    Since we know that there are orders for it, that is out. Materials (for the most part) we know are available, it just requires commitment and resources to get it.

    Soooo, by processes of elimination, there must be no money to be made at current market value.

    Everyone wants to make a huge fucking deal, with thousands of reasons why metals are down.

    Folks, it is simple…the earth is honest and it works only one way. Evil men are the problem.

    This will be rectified soon…I guarantee it.

    Nice to see that you have your own site now Steve…your “case for $100 silver” was spot on and one of the best silver articles ever written. As Rojelio mentioned above, not many really realize what goings into getting that tiny little pm coins into our appreciative little hands.

    But those in the know will have a chance at survival once the earth has finally had enough of this bs.

    thanks for all of your hard work.

    • Hey Lastman,

      yea up there by Libby. Their website says silver (40%) and copper concentrate with an estimated production rate of 1 million oz per annum. They should be booming, right?

      In their local paper, they are blaming “an unexpected discovery of ground fall in the B Drive area of the mine”. So it looks like they need capital improvement. No problem we’ve got 0% interest rate on Federal Reserve money right? Wait, that’s only for Goodfella’s at JPM.

      That $20 spot price can’t be helping too much either. That sucks.

    • lastmanstanding… Yeah, Revett Mineral’s Troy mine has been down since Dec 2012, but they look to get that back up and running at some point. However, as I stated in a previous post, U.S. Silver & Gold shut down their Drumlummon Mine in Montana and had to let go of a nice chunk of their employees there.

      You can read about that at this link:

  12. A planeload of obese tourists armed with a stack of credit cards can FLY to Egypt, DRIVE around in buses and use more energy to check out the pyramids than it took to build them in the first place. we wouldn’t even think twice about this.

    I think we have a long ways downhill yet to go.

  13. Here is a question for the panel: seeing how physical demand skyrocketed when gold/silver was taken down on April 12/15, does this make a case that maybe it’s time to buy the miners?? I know they sell their product at the physical price and NOT paper price.

    So the miners with resource in the ground should basically be considered as true gold vaults. Thoughts?

    Might this explain why Soros, Paulson and Einhorn are loading up on miners? They’re all connected men:

    • what if they nationalize the mines?

    • Mark… I posted an article by Tekoa on how the top Gold Hedge Fund Managers just took a big stake in the gold miners in the first quarter of 2013.

      I do believe the miners will be a great place to be in the future. They could turn around here shortly and I believe will be the place to be in the next 1-2 years. There is so much money on the sidelines and so many hedge funds and pension plans invested in the wrong assets — garbage. When the world realizes that the real money will be in physical assets and out of financials.. there will be a great shift into the miners.

      Yes, there will always be that threat of nationalization. However, you should never put your fundamental holdings into the miners.. that should be in the physical bullion. If you have spare money to invest, then the miners are a good place to be.. even if their might be nationalization.

      More about this later.


    • lastmanstanding | May 26, 2013 at 5:24 pm |

      Mark. How do pissants like us get out with a profit on these deals unless we are exceptionally lucky. The shits that you mentioned above don’t need luck, they have all the inside info that they need.

      Fuck luck in this bs paradigm…’if you don’t hold it, you don’t own it.”

      Tangibles baby! The more the better…and you had better learn how to negotiate with them.

    • lastmanstanding | May 26, 2013 at 5:29 pm |

      Mark, I should also mention that when this paradigm goes down, the paper game will be gone for good.

      At least that is what I am hoping for…a return to the golden rule, not like now where it’s “give me the ball and go to hell”

  14. Excellent essay. And I too think it’s important you have your own site. There are very few that include the reality of peak-oil with price/value analysis (or any analysis). And mining is a perfect example. Price analysis generally begins and end with supply & demand. By adding peak-oil and fiat devaluation we move closer toward understanding, albeit with increased complexity. Supply/demand, peak-oil, and currency destruction; all three are hopelessly interconnected.

    I’ve often wondered if any objective analysis that even uses dollar signs ($) isn’t automatically hobbled by definition; that is, it could read, “1940-$” or 1964-$” or “1970-$” or “2001-$” and so on. Combine this with the disproportionate amount of world-oil taken for granted in the US and one thing becomes obvious. Americans, more than any other group, see the world through oil-soaked green colored glasses.

    Looking forward to future articles Steve, and thanks for the SRSrocco Report.

    “Just like the formation of galaxies and hurricanes and nautilus shells, the universe of the macro-economy operates through non stochastic fractal growth progression and nonlinear decay. Expect the unexpected.” Gary Lammert

    • dale… thanks for your comment and your opinion. Yes, I totally agree with you on how energy impacts everything. I believe ENERGY = MONEY and gold & silver are STORES OF TRADE-ABLE ENERGY VALUE.

      Some disagree and comment that there isn’t any energy in a 1 oz coin of gold or silver… I actually agree. However, there is “ENERGY VALUE” that is contained in each coin to be traded for “ENERGY VALUE” locked into a good or service. I plan on discussing this more. I believe those who disagree do not understand the facts and once they see the whole system they will realize the energy equation is on their side as a base for gold and silver’s value.

      Lastly, Derivatives have destroyed the ability to value gold and silver (and most commodities). Once the Derivatives Monster dies, then we will see just how much the value of precious metals and commodities will rise in comparison to the financial assets — assets that will implode in value at some point in time.


      • Store of Value is an old concept. But yur recently coined “Store of Trade-able Energy Value” really gets to the heart of the matter. When ‘energy value’ becomes known, or, perhaps more accurately reevaluated, ‘trade-able energy value’ will again be a concept folks can envisage. I do remember when two coke bottles were worth a silver dime; so, what’s that reusable wine bottle really worth?

        Kunstler’s blog this morning drills right down to it; \Let’s All Go Medieval.

        “ These nervous ones are looking ever more closely these days at the distant nation of Japan, where an interesting scenario is playing out: the last days of a giant industrial-technocratic economy. The story there is actually pretty simple if you peel away the quasi-metaphysical bullshit it comes wrapped in these days from astrologasters like John Mauldin and Paul Krugman, viz. Japan has no fossil fuel resources. Zip. You can’t run their kind of economy without the stuff. And they can’t. Japan is crapping out, as they say in Las Vegas. Tilt! Game over. As this happens, Japan issues a lot of distracting financial noise that involves evermore “creation” of their own “money,” and the knock-on effects of that, but it’s all just noise.”

        And derivatives, holy smokes… Although we know the digital creation of money is more pervasive than the paper buck, we talk about “printing money” because it’s become somewhat of an idiom. But derivatives have levitated the system with an invisible ultra-expansion of fiat currency; hyper monetary inflation . It’s like loaded capacitor banks waiting for a short circuit (to paraphrase Beyond a Pale Horse). Once that happens, hyper monetary inflation becomes hyperinflation. Personally, I think the wires are already glowing.

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