High costs continue to plague Australia’s mining industry against a backdrop of soaring profits, particularly in Western Australia where record low unemployment levels are compounding the effects of tight supply.
High costs continue to plague Australia’s mining industry against a backdrop of soaring profits, particularly in Western Australia where record low unemployment levels are compounding the effects of tight supply.
As reported by WA Business News, major resource companies with significant operations in WA to face rising costs include Newcrest, Minara, Lionore, Consolidated Minerals, and Roc Oil.
Last week some of WA’s best known mining companies – WMC Resources, Croesus Mining and rich nickel miner Jubilee Mining – reported that higher mining costs were affecting their operations.
The squeeze was particularly evident on historic Kalgoorlie gold miner Croesus, which has been forced to defer mining at its Scotia open pit gold mine 30 kilometres south of Norseman.
While surging commodity prices for most minerals are helping to offset cost blowouts and skills shortages for some operators, Croesus Mining has been hit twice.
Croesus says it has been forced to defer mining due to higher than expected contract earthmoving rates, combined with the recent $40 per ounce fall in the $A gold price, from $580 to $540.
The move will cost Croesus about 5 per cent of its forecast annual production of 190,000 to 210,000 ounces of gold – about 10,000 ounces of gold or $5.5 million in revenue at current prices.
Croesus managing director Mike Ivey said that, although the current buoyancy across all sectors of the mining industry was making for exciting times, it was also forcing companies to be financially disciplined.
“It [the Scotia pit] makes a return at the moment but you have to make a decent margin in this game,” he said.
More drilling results from Scotia would be represented in six weeks to try and increase the pit’s size and robustness, however Mr Ivey said it was hard to see where costs could be trimmed at the moment.
“Labour, earth moving, oils and consumable, spare parts and tyre [costs] are only going one way at the moment, and that’s north,” he said.
“Labour and earthmoving costs are 25 per cent higher than they were 12 months ago.”
Mr Ivey said the mining industry was straining under the weight of soaring demand for most minerals.
“It’s a very, very rare event.”
Most companies were finding it difficult to compete against the giant iron ore and coal miners, who were sucking up equipment and people, he said.
“They are on a scale above most gold miners,” Mr Ivey said.
However it is not just the smaller end of town that is finding the competition tough.
Mr Ivey’s sentiments were echoed by WMC Resources CEO Andrew Michelmore at the takeover target’s half yearly results presentation in Melbourne last week.
After announcing a record $1.32 billion profit, up five-fold on the previous year, Mr Michelmore said WMC’s WA operations had been hit hardest by increasing costs and skills shortages. He said it was noted at a recent WMC board discussion that WA effectively had full employment.
“There is a lot of poaching going on at the moment,” Mr Michelmore told WA Business News.
Mr Michelmore said transport costs, particularly trucking costs, were up 15 per cent, mainly as a result of the large iron ore miners in the Pilbara taking anyone with experience.
“We are seeing it flow into Mt Keith but not yet into the underground operations,” he said.
The amount of exploration and feasibility study work occurring in WA has led to a supply shortage of drillers and experienced project managers.
Nickel miner Jubliee Mines also flagged increasing mining costs at its Cosmos Deeps operation when it announced a $45.2 million half-yearly net profit, down $8.3 million on the previous year.
