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Resource Clips


Posts tagged ‘Troy Resources Ltd (TRY)’

Clarifying cash costs

June 27th, 2013

The World Gold Council wants miners to report expenses more thoroughly

by Greg Klein

According to convention, gold can be mined for a few hundred bucks an ounce. Or, when byproduct metals are factored in, for less than nothing. But that method of reporting cash costs might be coming to an end, thanks to the World Gold Council. On June 27 the agency prodded companies to report “all-in sustaining costs” and “all-in costs metrics” to include “additional costs which reflect the varying costs of producing gold over the life cycle of a mine.” That includes exploration.

The guidelines aren’t compulsory, even for WGC members. Nevertheless council spokesperson Terry Heymann said, “We expect that many will use these new metrics, providing further consistency for investors and other stakeholders.”

The World Gold Council wants miners to report expenses more thoroughly

Goldcorp’s Porcupine fleet comprises just one of many mining expenses. With the company’s predicted all-in sustaining costs already close to the price of gold, total all-in costs would be even closer under the
World Gold Council’s new guidelines.

The WGC, which describes itself as “the market development organization for the gold industry,” devised the formula in consultation with its mining company members. Some of them began reporting all-in sustaining costs earlier this year. Barrick TSX:ABX explained its new approach in February. “Our current definition of all-in sustaining cash costs starts with total cash costs and adds sustaining capital expenditures, general and administrative costs, mine site exploration and evaluation costs, and environmental rehabilitation costs.”

As a result the company reported traditionally calculated cash costs for 2012 at $584 per ounce of gold, but all-in sustaining costs of $972. The company predicted 2013 cash costs holding firm at $584 but a drop in all-in sustaining costs to $945.

The previous month Goldcorp TSX:G explained that it considered “byproduct cash costs, sustaining capital, corporate general and administrative expenses and exploration.” But “as the measure seeks to reflect the full cost of gold production from current operations, new project capital is not included in the calculation.”

The company’s 2012 cash costs came to $645 or, after factoring in credits for other metals, a measly $315 an ounce. (Byproduct credits have given other companies negative cash costs.) But under the all-in sustaining cost formula, Goldcorp reckoned $865 an ounce for 2012. The company’s January statement forecast 2013 all-in sustaining costs at $1,000 to $1,100 an ounce, attributing the increase to inflation and “the impacts of lower grades and byproduct production at Peñasquito,” the company’s second-largest producer.

Newmont TSX:NMC and Yamana TSX:YRI ranked among others reporting all-in sustaining costs. The WGC suggests others start the next calendar year with the new guidelines.

But those announced June 27 go further than all-in sustaining costs. Now considered are costs not related to current operations: community, permitting, and reclamation and remediation. Also included are non-sustaining costs: exploration and study, capital exploration, capitalized mine development and other capital expenditures. Added together, they form the “all-in cost.”

Not factored in, however, are income tax, working capital, financing charges, “costs related to business combinations, asset acquisitions and asset disposals [and] items needed to normalize earnings, for example impairments on non-current assets and one-time material severance charges.”

The WGC considers the new approach “helpful to investors, governments, local communities and other stakeholders in understanding the economics of gold mining.” Presumably that might help clarify discussions about investment return, royalties and community benefits.

Of course the guidelines come at a time when bullion prices are falling towards or even below inflationary costs. Among last week’s most widely publicized mining news was Barrick’s announcement that it was slashing 100 desk jobs. Looked at less dramatically, that amounts to about 0.004% of the company’s 25,000 employees.

More troubling news, however, came from smaller companies. Golden Minerals TSX:AUM, Huldra Silver TSXV:HDA and Atna Resources TSX:ATN have all suspended mining over the last week, while Troy Resources TSX:TRY cut pay, staff and exploration, among other expenses. In a statement accompanying Troy’s June 27 announcement, CEO Paul Benson said, “Although we are bullish on the gold price over the medium and longer term, we will position the company to operate in the current price environment and any rise in the price of gold will be a bonus.”

Caribbean calling

April 10th, 2013

Sandspring’s pre-feas moves another Guyana gold project forward

by Greg Klein

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A revised development plan has reduced initial capital expenditures for Sandspring Resources’ TSXV:SSP Toroparu gold-copper project in Guyana. A pre-feasibility study released late April 9 laid out the economics for a 16-year open pit operation.

Using a 5% discount rate, the base case forecasts a pre-tax net present value of US$992 million and a 27.2% internal rate of return. After taxes the numbers show a $691-million NPV and a 23.1% IRR.

Sandspring’s pre-feas moves another Guyana gold project forward

Sandspring incorporated last year’s discovery of a
satellite gold deposit into Toroparu’s pre-feasibility study.

The study cut the initial capex to $464 million from the $482 million estimated by the January 2012 preliminary economic assessment update. Contributing to the more optimistic figures is an estimated $37 million that would come from cyanide leach processing of saprolite gold ore prior to commercial production. By year three, cash flow should fund the $50-million expansion to a 22,500-tonne-per-day operation. Payback would come in 2.6 years. Average annual production over 16 years would be 228,000 gold ounces at a cash cost of $700 an ounce, with copper credits factored in. About 78% of production would go into doré bars, with the rest in concentrate.

The project’s reserves include a satellite pit 1.2 kilometres from Toroparu that was discovered in May 2012. Combining three types of ore—saprolite gold, fresh gold and fresh gold-copper—the reserves show:

  • a proven category of 29.78 million tonnes averaging 1.1 grams per tonne gold and 0.13% copper for 1.05 million gold ounces and 64 million copper pounds
  • a probable category of 97.33 million tonnes averaging 0.98 g/t gold and 0.1% copper for 3.06 million gold ounces and 147 million copper pounds.

Within the pit shell but outside the reserves are resources that use a 0.3 g/t gold cutoff to show:

  • measured and indicated categories totalling 90.24 million tonnes averaging 0.83 g/t gold and 0.06% copper for 2.42 million gold ounces and 112 million copper pounds
  • an inferred category of 124.34 million tonnes averaging 0.74 g/t gold and 0.04% copper for 2.97 million gold ounces and 111 million copper pounds.

In a statement accompanying the announcement, Sandspring CEO Rich Munson said, “We are encouraged by recent approaches from third parties expressing interest in developing Toroparu jointly with Sandspring. Despite the expressions of interest, we recognize that funding a project of this scale is challenging in the current environment. We have therefore engaged Cutfield Freeman & Co, a leading independent advisory firm in the mining sector, to conduct a process to determine the options available for financing.”

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