Decision to delay a sign of cost crunch

Increasing costs are continuing to cause delays at operations in West-ern Australia’s resources industry.

The delay last week of the recommencement of mining at View Resources’ Bronzewing gold mine, and a downgrade in operations at Sally Malay’s Lanfranchi nickel deposit, provide the latest evidence of this trend.

View completed a feasibility study on the Bronzewing mine, 400 kilometres north of Kalgoorlie, which identified key costs as contract earthmoving rates, a chronic shortage of skilled labour, and key mining consumables and equipment.

According to View, all aspects of the feasibility study were in line with previous estimates, except for mining contractor costs which were approximately 30 per cent higher than previous estimates. This represents a $50 million increase over four years.

The consequences for View are a mothballing of the project until such a time as market conditions improve or higher grade reserves are found to make the project economically viable.

Acquiring the deposit from Newmont Mining in June last year, the gold miner had hoped to have the mine back on-line by now and this setback will dampen expectations some had over View’s new position in the industry. The company plans to reassess Bronzewing production in the next six to 12 months.

As previously reported by WA Business News, the cost crisis has become a major issue for the state’s miners despite some of the highest metal prices in recent memory.

Sally Malay Mining is another to feel the pinch in costs, changing plans for operations at its Lanfranchi nickel mine.

In an open briefing to the market, managing director Peter Harold revealed costs were a major factor.

“The main cost pressures have been labour, steel, underground consumables, fuel and contractors’ margins. Factoring in all those things it adds up to a significant increase,” he said.

In February the nickel miner announced to revert to an owner-operator arrangement at Lanfranchi, in which it expects to make significant savings. Changing tack further, Sally Malay downgraded minable reserves at the mine last week.

“Reserves have been revised down to 19,800 tonnes of contained nickel from about 27,000 tonnes,” Mr Harold said.

The labour component is not a significant issue, he said

“We don’t think we’ll have a problem attracting the required number of skilled workers because we’re only after a relatively small number,” Mr Harold said.

Yet another to adjust operations in the higher cost environment is Croesus Mining, which announced last month it had been forced to defer mining at its Scotia open pit gold mine due to higher than expected contract earthmoving rates.

The cost of not mining in the current price environment is arguably worth millions more with Croesus estimating the deferment will cost 5 per cent of its annual production, or $5.5 million in revenue at current prices.

The price of gold has steadily risen over the past year, levelling in the past three months to trade at around $550 an ounce, while futures markets are also reporting strong prices.

Nickel, meanwhile, has traded at an average of $US14,000/tonne since January last year.