Expect some big mining costs falls in Q1

By Lawrence Williams

The fall in the oil price will be having a very positive effect on operating costs at mines employing diesel-powered equipment and particularly those which have to rely on oil fuelled generators.  

This article has now been published on Mineweb.com.  Click on the link to view more articles on the world’s top mining and metals news and comment website.

The huge fall in oil prices may be having a devastating effect on major oil producers’ economies, but for the beleaguered global mining sector it will be proving, in many cases, a godsend.  Expect to see some big falls in mining costs in Q1 as a consequence.  Indeed Q4 costs are also going to be lower as a result of the reduced oil prices, but with the main price falls hitting late in the year we will only be seeing the principal impact this year.  With no signs of an oil price recovery in sight these cost falls could continue for some time to come.

Energy consumption can account for as much as 40% of some mines’ operating costs – particularly those in remote locations which have no access to grid power.  They mostly rely on diesel generators to provide mine power – and every part of the mining process utilises energy.  The percentage is probably highest for big open pit operations with long truck hauls.  A big 240 ton mining truck like a Cat 797 has a 1,000 gallon fuel tank which will require topping up every shift.  Costs will also be reduced for those operations employing long mine to port haulage distances for bulk minerals requiring diesel powered rail or truck hauls.

Underground mines also have high fuel consumption haul and load equipment and if long up-ramp truck hauls are required consumption rates are high, much as long up ramp hauls out of open pits, are also very fuel cost intensive.  Diesel powered underground loaders, which involve stop start activity while loading and tipping, are also high fuel users.  Virtually every activity, underground and surface, requires energy supply.

Mineral processing plants require large amounts of power too – indeed a recent Australian report reckoned that as much as 40% of a mine’s energy costs may be accounted for by comminution – crushing and grinding.  Even those on grid power may benefit as utilities relying on oil-fired power plants may be able to reduce their charges too.

Many of these miners, which incur costs in domestic currencies, but sell their product in US dollars will benefiting also, at least in the short term, from dollar strength, although since fuel is traded in US dollars this will reduce the benefits of the falling oil prices.  However the fall in oil prices will, in most cases, have been far greater than the rise in the dollar against the local currency.

As implied above, those that will see the biggest costs benefits are operations in remote locations relying almost entirely on diesel power.  For the most part they will already have been taking substantial steps to cut fuel usage – through elements on the mining side like improving mine design and haulage conditions and better scheduling of mine vehicles, while as to mineral processing the installation and utilisation of more efficient comminution equipment is also very important in cutting overall energy costs.  It is to be hoped though that the reduction in oil costs does not lead to ther cost cutting options being ignored.

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