In order to survive in a manipulated low-price environment, the gold producers resorted to “High-grading” some of their mines. By high-grading, the mining companies target higher ore grades in their operations to produce more metal while lowering costs.
Unfortunately, this short-term band-aid comes at a cost. When the mining companies choose to high-grade they are left with lower quality ore in the future that is more expensive to extract.
If we look at the chart below, the top 4 gold miners increased yields in half of their operations, while the other half stated declines. Barrick had 5 of its mines (regions) show a decline in average gold yields, while three had increases.
The largest increase in average yield at Barrick came from its Goldstrike mine which surged from 4.14 grams per tonne (g/t) in Q1 2013 to 6.78 g/t in Q1 2014. However, Barrick’s Cortez mine’s average yield declined from 4.45 g/t in Q1 2013 to 1.27 g/t in Q1 2014.
Newmont suffered declines in yields at seven of its mines while five managed slight increases. AngloGold reported increased yields at its underground and open-pit mines, however yields declined at its heap leach operations.
Of the top four, Goldcorp increased yields at its mines the most in the group. Goldcorp increased yields at six of its mines, while only four stated declines. The biggest increase in yields came from its Penasquito (+90%), Musselwhite (+25%), Alumbrera (+24%), Porcupine (+20%), and Wharf (+17%) mines.
Two of Newmont’s mines that experienced the largest decrease in yields were Red Lake (-27%) and Pueblo Viejo (-23%).
The table below shows the breakdown at each company. As a group, the top four gold miners processed 141.3 million tonnes of ore to produce 4,593,000 oz of gold in Q1 2014 compared to 137.8 tonnes of ore yielding 4,560,000 oz of gold in the same period last year.
Here we can see that even with “High-grading” many of the companies’ gold mines, the average group yield declined from to 1.03 g/t in Q1 2013 to 1.01 g/t during Q1 2014. The reason for the group’s average fall in yield was due to Barrick suffering a huge drop of a 1.53 g/t average yield in Q1 2013 to 1.24 g/t in Q1 2014. Barrick also stated a decline of 209,000 oz of gold production year-over-year.
On the other hand…. Newmont, AngloGold and Goldcorp recorded increased gold production from increased yields. Certainly, the removal of Barrick from the group, the average yield of the other three would have been higher.
That being said, Barrick is still the largest gold producer in the world…. so its top ranking brought down the average of the group. This is seen more easily in the next graph.
So there you have it. The top four gold miners overall production remained virtually flat while instituting their costly short-term solution of high-grading. In utilizing high-grading, problems will only get worse in the future for these top gold mining companies. Unless the price of gold rises considerably in the next few years, a lot of gold will remain in the ground… too expensive to extract.
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