tin mine costs - june 2013 - greenfields research / itri / curtin university / university of western...

© Greenfields Research

Ltd & ITRI Ltd 2013

RESOURCE COST AND CAPITAL

602

TIN MINE COSTS

John P. Sykes (on behalf of ITRI)

Director, Greenfields Research

Provisional PhD Candidate,

Centre for Exploration Targeting & Curtin Graduate School of Business

[email protected]

[email protected]

mailto:[email protected]





Ltd & ITRI Ltd 2013

Tin mine costs: Contents

1 Introducing the ITRI Tin Production Cost Model

2 Mine type – costly alluvial production

3 Geography – decline in Asia, Peru & Africa?

4 By-products – dependent on other riches

5 Company type – dealing with capital costs

6 Interpretation – identifying future competitive tin

supply

7 Review – thinking about “Black Swans”


Ltd & ITRI Ltd 2013

602 Resource Cost & Capital: Tin Mine Costs

Introducing the ITRI Tin Production

Cost Model Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7


Ltd & ITRI Ltd 2013

The Objectives

ITRI is hoping to acquire a user-friendly simple Excel-based

costs “model” which could be used to produce:

– Operating cost curve for existing mines (approx. 30)

– Future cost curve including new projects (additional 20

projects)

– Flexed results dependent on different explicit assumptions:

» Exchange rates

» Energy costs

» General inflation

» By-product/co-product revenues

– Easy to add additional operations/projects.

– Cost definitions (treatment of capital costs, depreciation

etc)?

– How to include small-scale and artisanal operations?


Ltd & ITRI Ltd 2013

Designed to analyse

• Custom cost model designed for tin

market studies.

• Input from the ITRI network in the tin

mining industry.

• Explicit costs provided or published by a

mine owner or

• Estimated using the Infomine Mining Cost

Service.


Ltd & ITRI Ltd 2013

What do the costs mean?

ITRI Cash Cost

• Mining + Processing + Realisation + Royalties

• Essentially the cost of operating the mine

• Realisation for custom miners:

– Marketing + Freight + Treatment Charge

• Realisation costs for integrated miners:

– Smelting + Refining + Freight

• Similar to other “cash costs” (eg Brook Hunt C1)

ITRI Central Cost

• Cash Cost + Corporate Admin & Responsibility

• Includes admin, exploration, mine closure allowances etc.

• Essentially the cost of operating the mine and the cost of

running the company which owns the mine.


Ltd & ITRI Ltd 2013

What do the costs mean?

ITRI Full Cost

• Central Cost + Cost of Financing a Mine

• Amortisation of start-up capital over the life of the mine

• Depreciation in value of the mine equipment

• Effectively the full cost of building and operating a mine and

administering the company in charge of it.

• Work on capital costs is still at the experimental stage.

Net of By-Product Costs

• Corresponding “net of by-product” cost for each of the costs

• By-product revenues subtracted pro-rata off tin production

• Negative cost means the tin itself is the by-product


Ltd & ITRI Ltd 2013

Which cost to use?

• “ITRI Net of By-Product Cash Cost” reflects an

individual mine’s competitiveness in any given

year.

• Good indication of floor price.

• “ITRI Net of By-Product Full Cost” better for

understanding the cost to bring a new mine on

stream,

• More useful for understanding long run marginal

costs and the equilibrium price to which the

market might gravitate.


Ltd & ITRI Ltd 2013

What are the variables that

can be adjusted? • Many different variables to help analyse different future

scenarios.

Mine types

• Alluvial, underground and open pit.

• Custom or integrated with a smelter.

• The new tailings re-treatment technology is approximately

modelled using a low stripping ratio alluvial mining cost for

the mining stage and a typical hard-rock processing cost for

the processing stage.

• ITRI is looking to improve the analysis of this type of

operation, as more technical information becomes

available.


Ltd & ITRI Ltd 2013


can be adjusted?

Technical variables • Ore grade & processing recovery for tin and by-products can

be adjusted for each year in the model

• Strip ratio for open pit and alluvial operations of either 1, 2, 4 or 8

• Guidance from mine owners, past performance, knowledge of

reserves or resources and knowledge of similar operations all

used for estimates.

• “Taylor Rule” is used for very early stage projects.

Cost inputs • Fuel, electricity and labour components for each of the mining,

processing and smelting stages

• Fuel costs track global oil prices

• Labour cost tracks Gross National Income Per Capita

• Electricity costs tracks inflation in the host nation.


Ltd & ITRI Ltd 2013


can be adjusted?

Economic variables • Local fuel costs based on GTZ (Transport Policy Advisory

Services) International Fuel Prices 2009 (6th Edition) survey,

produced for the German government.

• The Baltic Dry Index for shipping freight cost estimates.

• Land and sea freight costs use Infomine Mining Cost Service

data.

• Labour costs are estimated using the Gross National Income

Per Capita from the World Bank.

• Power costs are based on the relative cost of diesel in each

country (giving an idea of how much “fossil fuels” in each country

cost).

• Inflation data from the World Bank is forecasted forward for each

country and is used to forecast central costs and the “other” costs.


Ltd & ITRI Ltd 2013


can be adjusted?

Capital costs and exchange rates • Capital costs (unless already known) estimated using the

Infomine Mining Cost Service.

• Capital cost index from Infomine used for past and future costs.

• Lending interest rates (from the World Bank) used to estimate

financing conditions.

• Exchange rate data from World Bank and CIA World Factbook.

Timeframe • Covers 100% of production from 2006-2011.

• Individual mines where possible

• Or groups of similar operations are lumped together.

• Attempts to cover 100% of future production.

• The model covers the period 2006 to 2030, though beyond 2015

the information becomes very speculative.


Ltd & ITRI Ltd 2013

What production does the

model cover?

Countries • Argentina, Australia, Bolivia, Brazil, Burundi, Canada, China,

Czech Republic, DR Congo, Egypt, Germany, Indonesia,

Kazakhstan, Laos, Malaysia, Mongolia, Morocco, Myanmar,

Nigeria, Peru, Portugal, Russia, Rwanda, South Africa, Spain,

Thailand, the United Kingdom, the USA and Vietnam.

Mine/project profiles • Profile for each mine/project or group of production

• Includes:

– Resources and reserves;

– Operating costs – 2006 to 2020;

– Various inputs – fuel, labour and power costs, royalties etc.


Ltd & ITRI Ltd 2013

Outputs available

Cost Curves

• “Block” cost curve

– Each mine as a block.

– Volume of production versus cost in any given year.

– Arranged in order of cost

– Allows analysis of highest and lowest cost producers and the marginal

cost

• “Line” cost curve

– Traces over the tops of the block cost curve.

– More useful in comparing cost scenarios.

– Up to three different line curves can be compared at once.

Data tables

• Volume and cost of production for each operation, in each year, grouped

into the six different cost types.

• Production and each of the six different types of cost over time, for each

mine operation.


Ltd & ITRI Ltd 2013


Mine type – costly alluvial

production Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7


Ltd & ITRI Ltd 2013

Alluvial and artisanal

important for tin mining in

contrast to other base metals

Photos: Greenfields Research


Ltd & ITRI Ltd 2013

Unregulated alluvial and

artisanal mining occurs in

short cycles Global tin production (Kt)

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.01

97

0

197

3

197

6

197

9

198

2

198

5

198

8

199

1

199

4

199

7

200

0

200

3

200

6

200

9

201

2China Indonesia Malaysia Thailand

Peru Brazil Bolivia Australia

CIS/USSR Africa Other

Index of alluvial mining

booms

0.0

100.0

200.0

300.0

400.0

500.0

600.0

Ye

ar

1

Ye

ar

3

Ye

ar

5

Ye

ar

7

Ye

ar

9

Ye

ar

11

Ye

ar

13

Ye

ar

15

Ye

ar

17

Ye

ar

19

Year

21

Ye

ar

23

Ye

ar

25

Ye

ar

27

Ye

ar

29

Malaysia 1958-1987

Thailand 1962-1991

Brazil 1977-2006

Indonesia 1992-20112

Indonesia 2012-2017???

?

?

?

Data: ITRI/Greenfields Research


Ltd & ITRI Ltd 2013

Alluvial & artisanal mining

dominate marginal

production

Hard rock

Alluvial

Artisanal (non-

alluvial)


270,600t (est.)

2012 Cash Tin Cash Price (US$21,094)


Ltd & ITRI Ltd 2013

Hard or soft: Grade is king!

Theoretical change in cost due to changes in ore grade for a primary tin,

alluvial mine in Indonesia, producing 7,500 tonnes of tin per year, from a

team of gravel pumps, with a 100% recovery.


Approximate

grade of S.E.

Asian alluvial ores

Mining

Processing

Other


Ltd & ITRI Ltd 2013

Hard or soft: Grade is king!


Underground mine is a theoretical primary tin, underground mine in Australia,

producing 7,500 tonnes of tin per year, with a processing recovery of 75%.

Open pit mine is a theoretical primary tin, open pit mine in Australia, producing 7,500

tonnes of tin per year, with a processing recovery of 75%.

Approximate grade

of new hard rock

projects Mining

Processing

Other


Ltd & ITRI Ltd 2013

Alluvial mining vulnerable to

oil prices

Theoretical cost breakdown for a primary tin, open pit mine in Australia grading 0.490%,

producing 7,500 tonnes of tin per year, with a 75% recovery.

Theoretical cost breakdown for a primary tin, alluvial mine in Indonesia grading 0.215kg/m3,

producing 7,500 tonnes of tin per year, from a team of gravel pumps, with a 100% recovery.

Theoretical cost breakdown for a primary tin, underground mine in Australia grading 1.700%,

producing 7,500 tonnes of tin per year, with a 75% recovery.


Fuel

Electricity

Labour

Other

Vulnerable to labour

costs

Vulnerable to fuel costs


Ltd & ITRI Ltd 2013

Alluvial & artisanal mining in

decline Data: ITRI/Greenfields Research

341,400t (est.)

Hard rock

Alluvial

Artisanal (non-

alluvial)


Ltd & ITRI Ltd 2013

Tailings retreatment to the

rescue?

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Tin from tailings (Kt) Tin from tailings (%)



Ltd & ITRI Ltd 2013


Geography – decline in Asia, Peru

& Africa? Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7


Ltd & ITRI Ltd 2013

Asian countries dominate

production, very few

developed world tin miners World Tin Mine Production (2012 est.)



Ltd & ITRI Ltd 2013

Marginal alluvial and artisanal

mining in Asia & South

America vulnerable

Asia

Africa

Australasia

South America

Europe/Russia


270,600t (est.)


Ltd & ITRI Ltd 2013

Developed versus developing

world labour rates versus fuel

prices? Data: ITRI/Greenfields Research


Ltd & ITRI Ltd 2013

Developed nations a safer

investment, important for

large capital projects Country Ranking (of 181)

Canada 4th

Australia 5th

- -

USA 10th

- -

Germany 20th

- -

UK 25th

- -

Spain 27th

Country Ranking (of 181)

Peru 56th

- -

China 71st

Brazil 72nd

- -

Indonesia 111th

- -

Bolivia 125th

- -

DR Congo 159th

Rankings based on Greenfields Research’s proprietary mining political risk ranking system. The ranking system correlates

economic data sets that cover most of the world’s countries (such as the Transparency International Corruption Index, the World

Bank Doing Business dataset and GDP/land area) with well known mining industry political risk surveys, including the Fraser

Institute, Behre Dolbear and ResourceStocks, to get a system which ranks all countries by their suitability for mining, not just those

in the mining industry surveys.

Data: Greenfields Research


Ltd & ITRI Ltd 2013

Exchange rates important, a

stronger Rupiah raises

marginal costs

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

2006 2007 2008 2009 2010 2011

Exchange rates (to US dollar) indexed to 2006

Indonesian Rupiah (IDR) Chinese Renminbi (CYN)

Bolivian Bolivano (BOB) Brazilian Real (BRL)

Australian Dollar (AUD)

Weaker

Stronger

Indonesian Rupiah affects marginal costs

in tin. A stronger Rupiah means higher long

term tin prices



Ltd & ITRI Ltd 2013

Exchange rates important, a

stronger Rupiah raises

marginal costs

IDR8,000:USD1.00

IDR10,000:USD1.00

IDR12,000:USD1.00


312,600t (est.)


Ltd & ITRI Ltd 2013

San Rafael closure will jolt

marginal tin costs

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Median Cost 4th Quartile Cost 10th Decile Cost

000’s tonnes of

refined tin

Closure of

San Rafael



Ltd & ITRI Ltd 2013

Conflict minerals in the DRC

• https://www.itri.co.uk/index.

php?option=com_zoo&view

=frontpage&Itemid=60


Image: Shutterstock

https://www.itri.co.uk/index.php?option=com_zoo&view=frontpage&Itemid=60





Ltd & ITRI Ltd 2013

Asian mining in decline,

replaced by developed world

production World Tin Mine Production (2017 est.)



Ltd & ITRI Ltd 2013

More developed world

production coming on-stream Data: ITRI/Greenfields Research

Asia

Africa

Australasia

South America

North America

Europe & Russia

341,400t (est.)


Ltd & ITRI Ltd 2013


By-products – dependent on other

riches Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7

12th September 2012

Metal Pages Electronic Metals (Guangzhou,

China)

Slide 35 of

36


Ltd & ITRI Ltd 2013

Tin mining is dependent

on a wide variety of by-

products

Copper

Australia & China

Silver

China


Images: Shutterstock,

www.csksg.com,

www.tradekorea.com,

www.cdves.com, American

Elements, Wikipedia

Lead

China

Zinc

Bolivia, China

Antimony

China Indium

China

Gallium

China

Tungsten

Egypt, Mongolia,

Myanmar

Tantalum

Burundi, Congo,

Rwanda

Niobium

Brazil,

Burundi,

Nigeria

World Tin Mine By-Products (2012 est.)

http://www.csksg.com/

http://www.tradekorea.com/

http://www.cdves.com/


Ltd & ITRI Ltd 2013

By-products complicate

economics

None

Copper

Tantalum

Tungsten

Zinc

Polymetallic

Other


270,600t (est.)


Ltd & ITRI Ltd 2013

Tin industry uneconomic

without by-products Data: ITRI/Greenfields Research

Cash Cost

NBP Cash Cost

270,600t (est.)


Ltd & ITRI Ltd 2013

Tin industry uneconomic

without by-products

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2016 estimates of revenue shares for tin producing mines and mine projects

Tin Aggregates Copper Iron Ore Mineral Sands

Niobium Silver Tantalum Tungsten Lead/Zinc



Ltd & ITRI Ltd 2013

Tin mining will become

more dependent on by-

products

Copper

Australia, China,

Germany,

Kazakhstan,

Peru, UK

Silver

Australia,

Canada, China,

Kazakhstan,

USA


Images: Shutterstock,

www.csksg.com,

www.tradekorea.com,

www.cdves.com, American

Elements, Wikipedia,

www.made-in-china.com

Lead

China

Zinc

Australia, Bolivia,

Canada, China,

Germany, UK, USA

Antimony

China

Indium

Australia, Canada,

China, Germany

Gallium

China,

Germany

Tungsten

Australia, Canada,

Egypt, Kazakhstan,

Mongolia, Myanmar,

Portugal, Russia,

Spain, UK, USA

Tantalum

Australia, Burundi,

Congo, Egypt,

Kazakhstan,

Rwanda

Niobium

Brazil, Burundi,

Nigeria

Iron Ore

Australia,

Kazakhstan

Molybdenum

Canada

Titanium

Kazakhstan Zirconium

Brazil

World Tin Mine By-Products (2017 est.)

http://www.csksg.com/

http://www.tradekorea.com/

http://www.cdves.com/

http://www.made-in-china.com/






Ltd & ITRI Ltd 2013

By-products will increasingly

complicate economics


None

Copper

Tantalum

Tungsten

Zinc

Polymetallic

Other

341,400t (est.)


Ltd & ITRI Ltd 2013


Company type – dealing with

capital costs Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7

12th September 2012

Metal Pages Electronic Metals (Guangzhou,

China)

Slide 42 of

36


Ltd & ITRI Ltd 2013

Dominated by small, private

companies and state miners

~32,000t, 11.0%,

Private/Public, Peru

~39,400t, 13.6%,

State/Public, Indonesia

~27,200t, 9.4%,

State/Public, China

~11,600t, 4.0%,

State, Bolivia

~10,500t, 3.6%,

Private, China

~3,200t, 1.1%, Public,

Australia

~7,125t, 2.5%, Public,

Malaysia/Indonesia

~3,500t, 1.2%, State,

Vietnam

~2,500t, 0.8%, Private,

China

~2,000t, 0.7%, Co-op,

Brazil


Images: Company websites, ITRI,

Wikipedia


Ltd & ITRI Ltd 2013

Some privately-owned

marginal alluvial & artisanal

mines vulnerable

Private

Public

State


270,600t (est.)


Ltd & ITRI Ltd 2013

Financing adds to operating

costs, bigger companies may

be required Data: ITRI/Greenfields Research

NBP Full Cost

NBP Cash Cost

270,600t (est.)


Ltd & ITRI Ltd 2013

Substantial investment

required in new tin supply,

bigger companies required Company Project Capex

(US$M)

Capacity

(t/y Sn)

Capex

(US$/t/y)

Source

Consolidated Tin Mines Mt Garnet 124.0 3,050 40,700 Scoping 2010

Kasbah Resources Achmmach 167.0 6,880 24,300 PFS 2012

Metals X Rentails 173.2 5,300 32,700 Feasibility 2009

Stellar Resources Heemskirk 108.0 3,900 27,700 Scoping 2011

Venture Minerals Mount Lindsay 144.6* 3,700 39,100 PFS 2011

Total & average 716.8 22,830 31,397

• Total new mine supply required 2011-15: 70,000t/y

• Average capital cost per tonne new capacity: $31,400

• Total investment required in new supply $2.2 B


* Mount Lindsay is a tin-tungsten-magnetite project. The tungsten

plant in particular greatly adds to capital costs.


Ltd & ITRI Ltd 2013

Increasing role for public

listed companies and larger

companies Data: ITRI/Greenfields Research

Private

Public

State

341,400t (est.)


Ltd & ITRI Ltd 2013


Interpretation – identifying future

competitive tin supply Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7


Ltd & ITRI Ltd 2013

High marginal tin costs, mean

high long term prices

High and rising

marginal costs dictate

long term prices –

currently ~$25,000/t,

rising to $40,000/t ???


Hard rock

Alluvial

Artisanal (non-

alluvial)


Ltd & ITRI Ltd 2013

Generally rising costs mean

that even floor prices are

quite high

Recent price lows versus marginal cash costs Copper Zinc Nickel Tin

2011 Cash Costs (US$/tonne)

Median 2,250 922 6,505 8,686

10th Decile 4,000 1,530 16,048 13,327

Recent price history (monthly average LME 3-months prices)

GFC low 3,108 1,119 9,791 10,465

2011 peak 9,854 2,489 28,266 32,464

GFC low versus:

Median 138% 121% 151% 120%

10th Decile 78% 73% 61% 79%

Floor (100%)

seems to be

about ¾ the

marginal cost for

base metals,

currently about

$18,000/t, rising

to about

$25,000/t ???

Data: ITRI, Barclays Capital, Brook Hunt


Ltd & ITRI Ltd 2013

Alternative price forecasts

are all high

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Price history and forecast scenarios (US$/tonne)

Historical price (real 2010) Central Forecast

Double Dip Scenario Robust Growth Scenario

High demand growth,

significant new supply

required, prices will

trends towards a high

& rising marginal cost

No demand growth, new supply will struggle to

come on stream, prices will trend towards a high &

rising floor price

Future price

range:

$20,000-

40,000/t ???

Floor price: $20,000/t

???

Marginal cost:

$40,000/t ???

Data: ITRI


Ltd & ITRI Ltd 2013

Plenty of projects in the

pipeline: time and money

needed to develop them

~130 known

projects

~60 with historical

resources

10 with compliant

resources

4 at scoping

stage

1 at feasibility stage

~4.8Mt of estimated

reserves (USGS)

~3.2Mt as

historical

resources

824Kt as compliant

resources

310Kt

at

scoping

stage

90Kt at feasibility

stage

Data: ITRI, Greenfields Research,

USGS, Infomine, company

websites


Ltd & ITRI Ltd 2013

New supply will have to enter

the cost curve lower than

marginal alluvials Data: ITRI/Greenfields Research

Operating (2012)

Brownfields

Greyfields

Greenfields

New projects need to

enter the cost curve here!

These projects

currently

uneconomic!

341,400t (est.)


Ltd & ITRI Ltd 2013

Absorbing capital costs will

be a challenge for the

industry Data: ITRI/Greenfields Research

Operating (2012)

Brownfields

Greyfields

Greenfields

341,400t (est.)


Ltd & ITRI Ltd 2013


Review – thinking about “Black

Swans” Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7


Ltd & ITRI Ltd 2013

Spotting black swans

Tailings

mining?

Conflict tin? Myanmar

democracy?

San Rafael

closure?


New Brazilian

supply?

Tin in

Colombia?

Bolivian

expansion

slows

New

Russian

supply?

China?

SE Asia

revival?

New African

supply?

New

European

supply?

Australian

slowdown?


Ltd & ITRI Ltd 2013

Tin mine costs: Conclusions

1 The ITRI Tin Production Cost Model is designed to

analyse future scenarios and competitive supply

2 Alluvial tin supply falling to be replaced by hard rock

mining.

3 Declining Asian mining, new supply from elsewhere in the

world.

4 Increasing reliance on by-products as grades decline.

5 Future supply will have much higher capital costs.

6 High medium term prices, will encourage new supply on-

stream

7 Much uncertainty still remains in this analysis and the

work is under constant review


Ltd & ITRI Ltd 2013

References

• All data in this presentation is

sourced from the ITRI Tin Industry

Review, 2011

• And based on the following

presentations:

• http://www.slideshare.net/JohnSykes

/new-sources-of-tin-mine-supply


/supply-shortages-in-tin-mine-supply


/defining-the-future-of-tin-mining-

apr-2012

http://www.slideshare.net/JohnSykes/new-sources-of-tin-mine-supply













http://www.slideshare.net/JohnSykes/supply-shortages-in-tin-mine-supply













http://www.slideshare.net/JohnSykes/defining-the-future-of-tin-mining-apr-2012


















Ltd & ITRI Ltd 2013

Contact details

John P. Sykes MSci (Hons) MSc ARSM MAusIMM FGS

Director, Greenfields Research Ltd (UK)

Provisional PhD Candidate, Centre for Exploration Targeting

Australia Mobile: +61 448 658 656

Australia Office: +61 8 9467 1860

Email: [email protected]

Web: www.greenfieldsresearch.com

Linkedin: http://www.linkedin.com/in/johnpsykes

Peter Kettle

Manager – Statistics & Market Studies, ITRI Ltd

UK Office: +44 1727 871 347

Email: [email protected]

Web: www.itri.co.uk


http://www.greenfieldsresearch.com/

http://www.linkedin.com/in/johnpsykes

http://www.linkedin.com/in/johnpsykes


http://www.itri.co.uk/

tin mine costs - june 2013 - greenfields research / itri / curtin university / university of western...

Business

cost central cost

cost of financing

cost of building

itri cash cost mining

resource cost capital

custom cost model

cash costs

operating cost curve