Cost of production

What it is

Production costs are the running costs of the mine, as opposed to the cost of building it (capex). They are paid every year the mine operates.

The main parts

• Mining: drilling, blasting, loading and hauling rock. In an open pit this includes moving waste rock to reach the ore.
• Processing: crushing, grinding and separating metal. Energy and reagents are large items.
• General and administrative (G&A): site management, camp, safety, environment, community.

Two ways to measure it

Per tonne of ore describes the operation:

Per unit of metal lets mines be compared, and is how producers report:

• C1 cash cost: direct mining, processing and site costs, plus cost of sale, minus credits from by-product metals.
• All-in sustaining cost (AISC): C1 plus sustaining capital, royalties and corporate overheads. The fuller and more comparable measure.

What drives it

• Strip ratio: tonnes of waste moved for each tonne of ore in an open pit. A high strip ratio means high mining cost.
• Mining method: underground mining costs far more per tonne than open-pit mining.
• Grade: a higher grade spreads the same cost over more metal.
• Scale: larger operations usually have lower costs per tonne.
• Energy, labour and currency: often the biggest swings over time.
• By-product credits: revenue from a second metal can be deducted, lowering cost per unit of the main metal.

Why it matters

Where a mine sits on its industry's cost curve, ranked from cheapest to most expensive, decides whether it survives a price fall. Mines in the lowest-cost quarter stay profitable through most downturns; those in the highest-cost quarter often close.

Ranges are indicative and vary widely by deposit. This is educational material, not investment advice.