Submitted by SD Contributor SRSrocco
I am seeing some very interesting signs that seems to be INVISIBLE to the gold and silver mining companies. They are SLEEPWALKING into a future with the idea that they can keep their business plans going on forever.
In the first 6 months of 2012, Barrick has updated their annual consumption of diesel to be approximately 5 million barrels. This is 210 million gallons per year, or 105 million for 6 months. Here is the following from their Q2 2012 Report:
105,000,000 mil gallons / 3,633,000 oz gold = 29.0 gals diesel per oz gold
So, in just one year, Barrick has increased its consumption of diesel per oz of gold 4.4 gallons of diesel per oz (or 18%), in just 6 fricken months. How about dem apples?
NEW MINES COMING ONLINE MAY BE IN TROUBLE.
I have to tell you… from the researching that I have been doing lately, I firmly believe the gold and silver mining industry is completely asleep at the wheel as it pertains to the future. I have been speaking to some of the folks at Barrick and Newmont and I realize these folks (nice enough on the telly), are so compartmentalized… they have no clue.
I just can’t believe how much South African gold ore grades have fallen in the past 6 years. Barrick and Newmont’s ore grades have stayed virtually flat, but their diesel consumption is increasing at nearly a double rate in the same time period.
For instance, this is Barrick’s Diesel Consumption 2005-2011:
The reason why the listing of overall diesel consumption shows the same figures for several years is the way Barrick provides the data. Most of this info comes from the sustainability reports. However, Barrick does not list their diesel separately in these reports, instead they update it in their quarterly and annual reports.
As you can see from 2006-2008 they listed the same amount (in barrels… I converted it to gallons). Be that as it may, we can see that their consumption of diesel per oz of finished gold has gone up 10 gallons per oz of gold in 6 years (60%). But… it gets even better.
In the first 6 months of 2012, Barrick has updated their annual consumption of diesel to be approximately 5 million barrels. This is 210 million gallons per year, or 105 million for 6 months. Here is the following from their Q2 2012 Report:
105,000,000 mil gallons / 3,633,000 oz gold = 29.0 gals diesel per oz gold
So, in just one year, Barrick has increased its consumption of diesel per oz of gold 4.4 gallons of diesel per oz (or 18%), in just 6 fricken months. How about dem apples?
NEW MINES COMING ONLINE MAY BE IN TROUBLE
I have been glancing over several of the gold mining companies plans for bringing on new mines in the next several years. None of them… ZIP, have any idea of what the energy situation will be like in 2-3 years, or what the costs will be.
It seems like gold costs are going up about 20-21% in the first 6 months of 2012 compared to the same time last year, and silver costs are going up about 32-33% respectively. Now, this is not an exact science, but something I am seeing as an overall basis. I think Coeur d’ Alenes costs went up 32% for the first 6 months but a staggering 71% this past quarter.
You know what they say….WITH COSTS LIKE THAT… WHO NEEDS ENEMAS…
Anyhow, I am seeing some very interesting signs that seems to be INVISIBLE to the gold and silver mining companies. They are SLEEPWALKING into a future with the idea that they can keep their business plans going on forever.
One last thing… Fresnillo is touted as the largest primary silver miner in the world. This may be true in overall silver production, but no longer the case for TOTAL REVENUE. Take a look at the chart from the Q2 2012 update:
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/images/live/s_silv.gif)
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/images/live/s_gold.gif)
Nice work again Steve!
Call it the new petro-business cycle. As the price of liquid fuels increases, business activity decreases because of the increase to input costs. Then with lower business demand the price of liquid fuels decreases until the lower price stimulates an increase in business activity. Then the cycle starts over.
As gold and silver mines play out, miners turn to lower and lower assay ore fields. They have to do this is continue metals production because these deposits are all there is. As the ore gets thinner more rock has to be moved and processed to recover the metals. This trend has been going on for some time now and it is likely that it will continue for the foreseeable future. Metals WILL become more expensive to produce and metals prices will HAVE to increase.
ED_B… you took the words right out of my mouth…lol
When mining input cost are low, the smart miners will process their lower yielding ore areas. When input cost are high, they will process their higher yielding ore areas. This fosters a more consistent level of operating profit.
Maybe there is another way to look at this phenomenon. If gold and silver become increasingly scarce and expensive to produce, these metals will either increase in value due to the scarcity or they will increase in value due to the extraction costs which would naturally force up the price if they are to be made available to buyers. Silver is virtually irreplaceable and gold is in high demand.
In either case, inflation would have little effect on the price nor would the price increases have any appreciable effect on the rate of inflation. It would be more of a supply/cost/demand function operating in the confined world of PMs PMS are such a small part of the overall world wealth and asset holdings their dynamics would operate in their own small universe, little affected by outside forces. Just a thought and maybe completely off base.
@uglydog
Exactly, the smart miners mine the low grade ore thus the increase of fuel consumption per ounce. The good news is that supply/demand will get squeezed.
A FEW WORDS ON MINING ORE GRADES
I see there have been several comments about how companies change their mining of different ore grades to optimize profits or costs. This is something that I have heard from folks such as JIM SINCLAIR. Sinclair states that gold miners should mine their lower grade ores when the price of gold is high, and mine their higher grade ores when the price of gold is lower. In theory, this is correct. However, this is not taking place in the gold mining community as Sinclair has stated himself several times (as well as ANTON FEKETE).
Furthermore, this technique of changing ore grades for profitability does not pertain to base metal mining… where the majority of silver is produced. For instance, a copper mining company will produce ore as it is mined from the ground regardless of its ore grade.
So, even if this system of changing ore grades for the gold miners is a wise one, few if any are taking advantage of it.