Bullion miners lament cost and tax pressures – by Euan Rocha (Calgary Herald – March 28, 2012)


Agnico, which taps miners in Quebec, is facing cost pressures on the labour front
 Reuters – TORONTO – Rising labour costs, surging oil prices and higher tax rates are eating into profits of precious metals miners and raising the cut-off bar on new projects, making it much more difficult for them to replace reserves and boost production.
High precious metal prices are prompting governments to raise taxes and royalties on miners, industry executives say, while giving little thought to the level of risk and the amount of investment required to develop these mammoth projects.
“Countries want to impose super taxes – well, where are the super profits?” Gold Fields chief executive Nick Holland said at the Reuters Global Mining Summit this week.
“If we do want to sustain the gold industry where it is – never mind grow it – we are going to need to spend money. And to spend that money we are going to need to provide returns for shareholders,” Holland said, explaining the conundrum facing global mining companies.

Kinross Gold’s Fruta del Norte project in Ecuador is a case in point, say some industry executives who see the Andean nation’s proposal to claim more than 50 per cent of potential profits as tantamount to stealing the asset. Kinross is working on renegotiating that proposal.
Holland argues that one of the biggest challenges facing the industry is setting governments around the world straight about their situation.
Although many miners are reporting record profit margins, it does not mean they are reaping bonanza profits, as capital costs to build projects are running into billions of dollars as labour, energy and material costs surge.
Newmont Mining, the world’s No. 2 gold miner, recently shelved its Hope Bay project in the Canadian Arctic and booked a $1.6-billion writedown on it after the economics of the project failed to meet its investment criteria.
“People think we are making bonanza profits in the gold sector, but we are not,” said Holland, who argues that capital costs and reserve replacement spending can push all-in production costs to the $1,200 to $1,300 per-ounce range.

Higher taxes and royalties are not the only cost pressures. A growing shortage in skilled labour, coupled with a spike in energy and material prices, is making new mining projects much more challenging and raising costs at existing mines.
For the rest of this article, please go to the Calgary Herald website: http://www.calgaryherald.com/business/Mining+summit+Bullion+miners+lament+cost+pressures/6372724/story.html