"On the supply side, gold is not only rare but also costly to locate, mine, process, and refine. This balance of enduring demand and limited supply has made gold a classic store of wealth."
Although this above opinion is popularly held and is not seriously in error, it does give a bit of a false picture to the investor. In fact, mines are more made than found. The chief problem is that a mine is capital intensive up front.
In many cases the problems with the ore require engineering expertise to solve. Some companies do not mine cheaply, or recover efficiently. The profit is frequently found in the geological or engineering-mining approach, or the solution to the recovery problem.
The difficulty becomes getting the capital to start and convincing the capital group that the situation allows good profits at the prices that prevail. In fact by the ton, gold ore is quite cheap to process in many locales with many techniques. It is also dirt cheap to refine. Far flung enterprise in areas that are difficult to get to and without roads, can mine at profit for gold, as the product is compact and can be flown out. You don't have to worry about where a gold mine is. It can make as much money in the Arctic as it can upstate New York.
The bottlenecks I have seen are mining cost, environmental costs mandated by governments, and the cost of money. Scotty Gold mines in BC suffered at very high gold prices and good grade because their money cost them 25%, and their mining methods and labour costs there were expensive. Ergo, they did not make a good profit. Under Witte, Royal Oak embarked on many low grade high tonnage experiments. The paper plans looked good up front with many buzzwords about new metallurgy and economies of scale, but the mills suffered with low recovery, and the mining had uncertain grade.
In hindsight, many who had looked at the Royal Oak projects felt that the grade had been overestimated by too few drill holes and too much assumption. I feel too that in many cases the CIL or CIP recovery techniques had too high a loss rate when pushed to too many tons per day. ( CIP = Carbon in Pulp, a relatively new process used since the 70's)
These problems surfaced at Dona Lake, Cullaton Lake, and McDiarmid and other mines. High tails losses, tie up of gold in circuits, and the like. A lot of wishy washy stuff out of management about tie up of gold in circuits and refractory ores. In fact, to some processes the ores are not refractory at all. One could guarantee at least 90% recovery in with cheap, small, low capital cost, low throughput cost technology. CIL and CIP is sometimes (one thinks often) a mistake. Cullaton was badly advised by SNC Lavalin, who had opted for a CIP mill, of too low tonnage when other simpler, older technologies, would have made money. Even Campbell Resources, who took that one over, struggled with the same CIP stuff for years and gave up after a while. They should have known better, but had not modernized their system in Red Lake to improve enviromental damage or recovery in any meaningful way for many years. Their science and judgement was poor.
The keys are:
1. Getting exploration capital
2. Maximizing exploration effectiveness with knowledge of structure and practical techniques
3. Getting mill money
4. Designing to lowest capital cost, best scale.
5. Energy efficiency in mining and milling
6. Best techniques in recovery with lowest environmental and other costs.
Many firms get too far down the road with too high up front costs and their engineering in mining is too old, and their milling is too new. They just can't cut it. In 1890 an engineer made many mine situations with refractory high sulphde ores in the SW United Stated very profitable by using very simple energy efficient techniques that benefited these ores. He roasted the ore, or concentrate, then cyanided it. This technique is actually dirt cheap as the process or roasting is exothermic, and provides, -- does not drain, -- energy. (Could be used in co-gen) It allows the release of valuable metal and allows complete, and cheap cyanidation with low losses. Today, however, the roasting liceneses would be impossible to get, so losses with these ores is actually higher than it was then. Or so it is thought. We think this area with new processes could be visited again, and strangely the more refractory the ore, the cheaper it gets to process it!
If the politics of obtaining ore worldwide were not so difficult and the politics of obtaining money not so fraught with trouble, it would be easy to employ modern and ancient practice to mine precious metal with little acquisitional cost to the long term benefit of shareholders.
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