Lagunas Norte: Increasing Barrick’s cost per unit

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Location

The Lagunas Norte mine is located on the Alto Chicama property in north-central Peru. It is an open-pit operation, with an average mining rate of 111,500 tons per day. Gold and silver recovered from the ore is smelted into doré on-site and shipped to an outside refinery for processing into bullion.

For more about doré, read Market Realist’s, Investing in gold: A must-read value chain analysis.

Lagunas Norte mine layout

Increasing costs

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It’s one of Barrick Gold Corporation’s (ABX) lowest-cost mines. Meanwhile, its cost per unit has been increasing over the last few years. This is mainly because of a decrease in the ore grade. Lower ore grade increases the amount of waste stripping required—in order to extract some volume of ore—as a result of mining more tons of waste.

Reserves and production

As of December 2013, proven and probable gold reserves at Lagunas Norte were 3.75 Moz, or million ounces. In 2012, the mine produced ~ 606 thousand ounces of gold at AISC (or all-in sustaining costs) of $627 per ounce in 2013 compared to ~754 thousand ounces of gold at AISC of $565 per ounce. Barrick expects 2014 production to range between 570 and 610 thousand ounces at AISC of $640 to $680 per ounce.

Barrick’s peer, Newmont Mining Corp (NEM), runs Yanacocha mine in Peru, which is also aging and hit by dwindling reserves. Other companies, including Goldcorp Inc. (GG), Agnico Eagle Mines Ltd (AEM), and Kinross Gold Corporation (KGC), are also feeling the effects of shrinking reserves.

The VanEck Vectors Gold Miners ETF (GDX)  invests in all the above-mentioned stocks, while the SPDR Gold Trust ETF (GLD) provides exposure to the spot gold prices.

 

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