How a crash in metals prices has made 2016 a great year to build a mine – by Peter Koven (Financial Post – February 22, 2016)

http://business.financialpost.com/

Earlier this month, Stornoway Diamond Corp. said something that would have been unimaginable a few years ago — its mine is being built ahead of schedule and under budget.

“You can imagine we’re sticking our necks out by saying that, so we have to be pretty confident it’s the case,” Stornoway chief executive Matt Manson said in an interview. “And we are.”

The Montreal-based firm, which is building Quebec’s first diamond mine, moved the completion date up by five months to the end of 2016. It also slashed the construction cost estimate by more than $35 million to $775.4 million.

During the commodity boom, capital cost blowouts became so routine in the mining industry that they became a running joke. Analysts and investors just assumed costs would be much higher than the companies’ projections, and they were usually right.

One extreme example was Barrick Gold Corp.’s Pascua-Lama mine, which was budgeted at just US$1.5 billion in 2004. Barrick spent more than US$5 billion before halting the unfinished project in 2013. If Pascua-Lama ever gets completed, the ultimate cost could exceed US$10 billion.

However, the construction environment has changed dramatically because of the crash in metal prices. Skilled labour is far more available, equipment is cheaper and gets delivered faster, and the prices for other inputs like steel and pumps have plummeted.

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