Lower Fuel Costs Driving Down Mining Cash Costs

Yet another bullish-yet-ignored factor on the cost side for miners is lower fuel costs of late. As a rule of thumb, gold miners use $100 of diesel per ounce of gold produced. Fuel is one of the larger cost components of mining and added nearly $50 to cash costs since 2009-2010. Diesel is leveraged about 60% to oil prices.

Fuel cost spiked in the first half of 2014, and this would have been reflected in cash costs for miners. However, prices have broken and the the flow through from the drop in oil in the last few weeks will bring diesel prices even lower. Analysts ought to be using about $10-$15 lower cash costs for the 4th quarter (compared to 2013), if the low $80s handle on oil sticks.

I will be reporting Shanghai gold deliveries in tonnes to better conform with the Koos Jansen figures. Friday’s session was a another stunner at 14.05 tonnes.