Gold Mine Production Costs up by 17% in 2006 While Output Fell

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GFMS notes that with few exceptions producers have emphasised the challenges of increased procurement costs of essential infrastructure, including diesel, tyres and extraction reagents.

In its latest annual survey of the gold market, GFMS Ltd reports that global mine production cash costs rose by $45/ounce, or 17%, year-on-year to $317/ounce. The increase in cash costs was roughly twice the size of those experienced in 2004 and 2005, with much of the increase largely beyond miners' control (energy prices, for example, although it is arguable that some of this may have been hedged by some producers)...

GMFS details local currency cash margins for the "Big Four" producing regions. In South Africa the margin was 58% of cash costs; in Australia, 85%; Canada, 87%; and in the United States, 69%. The increases in cash margins by comparison with those registered in 2005 were 190%, 73%, 41% and 49% respectively.

The increases in costs were most notable in North America, with cash costs soaring by $80 (29%)in the United States and $66/ounce (26%) in Canada. The rise in Australia was broadly in line with the global average while that in South Africa was the smallest rise among the major costed regions, which cover 1,362 tonnes or 55% of the global total of 2,471 tonnes. GFMS notes that with few exceptions producers have emphasised the challenges of increased procurement costs of essential infrastructure, including diesel, tyres and extraction reagents. Costs of contractors and skilled workers have also been on the increase a result of the boom in the mining industry, and there is of course a kickback from the increased gold price in the form of higher taxes and royalties.

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