1/27/2017

CostCompetivenessOfEuropeanMines|S&PGlobal

BYCONTINUINGTOUSETHISSITE,YOUAREAGREEINGTOOURUSEOFCOOKIES.REVIEWOURPRIVACY&COOKIENOTICE

HOME>OURTHINKING>METALS&MINING>BLOG

Contact|FindaJob|SubscribetoBlogs

ABOUT US

CLIENT SOLUTIONS

OUR THINKING

PRODUCT LOGIN

REQUEST A TRIAL
Search

1DAYAGO

Cost Competiveness Of European Mines

CHRIS HINDE

S&PGlobalMarketIntelligencerecentlyexploredwhetherminesbasedintheEuropeanUnionarecostcompetitivewithotherglobalproducers.We

examinedoperatingcostsofcopper,ironore,andgoldminesin2015.Inconsideringunitcostsforoperatingmines,figuresindicatethattheEU28sm
operationsare,andcancontinuetobe,competitivecomparedtominesinothercountriesaroundtheworld.
TheonlyconsistentlylesscompetitivecomponentofoperatingcostsatEU28minesisthelabourcost.ThisisaresultofhighwageratesintheEU28

MemberStatescomparedtolessdevelopedcountries.LabourcostswithintheEU28docompare,oftenfavourably,withthoseinotherdevelopedcou
suchasAustralia,Canada,Chile,andtheUnitedStates.

WiththeexceptionofcopperinPoland,royaltyandtaxcostswithintheEU28aregenerallymorecompetitivethanothercountries.Othercostelement

EU28minesarealsogenerallysimilartotheaveragecostsfromotherregionsoftheworld.MinesoperatingwithintheEU28benefitfrombeingclose
havingaccesstogoodinfrastructure.

Copper:TheEU28accountfor4.6%ofglobalproductionin2015,fromminesinBulgaria,Cyprus,Finland,Poland,Portugal,Romania,Spain,andSw
OfnoteisKGHMsPolishoperations,whichaccountedfornearly50%ofcopperproductionfromtheEU28,andisoneofthebiggestcoppermining
complexesintheworld.Thiscomplexisalsothebiggestsilverproducerintheworld,minedasabyproductofcopperproduction.

Figure1illustratestheoperatingcostsforcopperminesintheEU28andotherregions.Intermsofcostsperunit,Mexicoisthemostefficientproduce

PapuaNewGuinea(PNG)isthehighestcostproducer.TheEU28arelocatedintheupperquartileofthechartandhavecostssimilartothoseofBraz
Canada,andZambia.

Intermsofindividualcosts,theEU28indicateshigherroyaltyandproductiontaxescostsincomparisontocountrieswithsimilartotalminecosts(Can
Brazil,andZambia).EU28labourcostsaresimilartothoseinCanadaandBrazil,whileitscostsassociatedwithreagentsarelower.

http://marketintelligence.spglobal.com/blog/costcompetivenessofeuropeanmines?utm_source=feedburner&utm_medium=email&utm_campaign=Feed

1/5

1/27/2017

CostCompetivenessOfEuropeanMines|S&PGlobal

BYCONTINUINGTOUSETHISSITE,YOUAREAGREEINGTOOURUSEOFCOOKIES.REVIEWOURPRIVACY&COOKIENOTICE

Contact|FindaJob|SubscribetoBlogs

ABOUT US

CLIENT SOLUTIONS

OUR THINKING

PRODUCT LOGIN

REQUEST A TRIAL
Search

Ironore:TheEU28accountfor1.3%ofglobalironoreproduction,minedinthreecountrieswithintheEU28:Austria,Germany,andSweden.Byfar,t

mostsignificantcontributioncomesfromSwedensLKABoperations,KirunaandMalmberget,accountingforalmost90%oftotalEU28ironoreprodu

TheEU28,ontherightsideofthehorizontalaxis,faceshigheroperatingcoststhanCanada,butlowerthanthatoftheUnitedStates.Intermsofindiv
costcomponents,energyandotheronsitecostsarehigherintheEU28thaninCanadaortheUnitedStates.

Gold:In2015,TheEU28accountfor0.9%ofglobalproduction,fromoperationsinBulgaria,Finland,Greece,Poland,Portugal,Romania,Spain,and
Sweden,withover80%comingfromminesinBulgaria,Finland,andSweden.

Figure3illustratestherelativepositionoftheEU28goldproducersontheglobalcostcurve.Theregionislocatedontheextremerightofthehorizont
indicatingitsrelativelyhighoperatingcostscomparedtoallothercountriesreviewed.

TCRC&ShipmentcostsforgoldmineswithintheEU28arehigherthanalltheothercountriesinthisstudyasaresultofanumberofgoldminesinth
regionproducingaconcentratethatrequiressmeltingandrefining,ratherthandore.

Doreisaproductcomprisinggoldandsilveralmostentirelyandisthemostcommonproductofgoldminingoperations.Refiningdoretofinishedgold

silverincursonlyasmallrefiningchargeand,becauseofitslowbulk,transportcostsarenegligible.ForthesereasonsmostnonEUcountrieshaveve
TCRC&Shipmentcosts.

Insteadofdore,severalEU28minesproduceaconcentrate.Thisconcentratetypicallyhasgoldgradesofhundredsofgramspertonneandrequiresb
smeltingandrefiningtoproducefinishedmetal.Theadditionalsmeltingrequiredcomparedtodoreincursasignificantadditionalcost.

GreatertransportcostsarealsoincurredwithintheEU28duetogoldconcentratesgreaterbulkcomparedtodore.Thisdiscrepancyinmassisdueto

concentratescomparativelylowgoldcontent.Inaddition,ChelopechgoldmineinBulgaria,whichaccountedforapproximatelyonethirdoftheEU28

productionfromprimarygoldminesin2015,producesaconcentratewithhigharseniccontentthatincurssignificantadditionalcostsatthesmeltingst
Asaresult,goldmineswithintheEU28havehighcombinedTCRC&Shipmentcosts.

http://marketintelligence.spglobal.com/blog/costcompetivenessofeuropeanmines?utm_source=feedburner&utm_medium=email&utm_campaign=Feed

2/5

1/27/2017

CostCompetivenessOfEuropeanMines|S&PGlobal

BYCONTINUINGTOUSETHISSITE,YOUAREAGREEINGTOOURUSEOFCOOKIES.REVIEWOURPRIVACY&COOKIENOTICE

Contact|FindaJob|SubscribetoBlogs

ABOUT US

CLIENT SOLUTIONS

OUR THINKING

PRODUCT LOGIN

REQUEST A TRIAL
Search

INDIVIDUALCOSTCOMPONENTS

Labour:LabourcostsfromtheEU28miningoperationsareaboveaverage.Despitebeingaboveaverage,theEU28labourcostsarecomparableto,

oftenlowerthan,developednationssuchasAustralia,Canada,Chile,andtheUnitedStates.Itisimportanttonotethathighsalariesdonotnecessari
equatetohighlabourcosts.

Agoodexamplecanbeseeninironore(Figure2),wheretheEU28,comprisingLKABsSwedishminesKirunaandMalmberget,hasalowerlabourc

thanAustralia,theUnitedStates,CanadaandChile.Thisisdespitetheseminesbeingtwooftheonlyundergroundironoreminesintheworld,which

generallymorelabourintensivethanopenpitmines,andSwedenhavingrelativelyhighwages.Thereasonablelabourcostsherearearesultofthem
efficientoperation,whichhasbeendrivenbyLKABoveranumberofyears.

Theconverseofthiscanbeseeningold(Figure3),whereSouthAfricahasthehighestlabourcostdespitehavingrelativelylowwagerates.Thisisa
ofmanySouthAfricanminesexploitingdeep,difficultorebodiesusingoutdatedtechniquesandequipment,whichleadstolowproductivityrates.

Energycosts:Inallcommoditiescovered,theenergycostwithintheEU28wasgenerallyclosetotheglobalaverageandsometimeslower.Ingenera

consumptionofbothelectricityandfuelisdictatedbytheequipmentinuseateachminesiteratherthanitsgeographicallocation.Minesoperatingwit

EU28generallybenefitfromhavingaccesstogoodinfrastructureandthereforeareusuallyabletosourcetheirelectricityfromnationalgridswhereele
pricesarereasonable.
Thecountrieswiththelowestenergycoststendtobethosewithaccesstocheapelectricitysuch
asRussia,whichhasaccesstoelectricitygeneratedusingcheapnaturalgas,whilstthe
countrieswiththehighestenergycostsarethosewithpoorinfrastructureorremoteminesites
wheredieselgeneratorsarecommonlyusedasasourceofelectricity.
Reagentcosts:Reagentcostsheavilydependonthetypeoforebeingprocessedandthe

Learn More About Sector Intelligence

Request Trial
Sector Intelligence

processingtechnique,asthesefactorsdictatewhatchemicalsareneededandhowmuchis

required.Thepriceofchemicalsdoesvarybyregion,butasthiscostcoverssuchavarietyofproducts,noclearregionalpatternscanbedistinguishe
reagentcostofminesoperatingwithintheEU28willbenefitfromthegoodinfrastructureintheregion,asthiswillhelpreducetransportcostsofany
chemicalsrequiredwhilstthissamefactorhasanadverseeffectonreagentcostsinthecountrieswithpoorinfrastructureorremotesites.

Otheronsitecosts:Asthesecostscompriseavarietyofcomponents,itisdifficulttodrawanyconclusionsfromregionalfigures.Itshouldbenotedt

EU28minescoveredinthisstudyhaveapproximatelythesameaverageonsitecostsasothercountries.Thereappearstobenobenefitordetriment
thesecostsforminesoperatingwithinMS.

TCRC&shipmentandoffsitecosts:TheseoffsitecostsforminesoperatingintheEU28areclosetotheaveragecostforothercountriescoveredfo

commodities,withtheexceptionofgold(Figure3).Treatmentandrefiningchargestendtoberelativelyconsistentacrossthecommodities,withfaciliti

undertaketheseprocesseschargingthesamepriceirrespectiveoftheproductsorigin.Thepresenceofseveralintegratedoperations,werethemine

integratedwithasmelter/refineryoperatedbythesamecompanythatoperatesthemine,withintheEU28appearstohavehadminimalimpact,either

positivelyornegatively,onthesecosts.Themainvariableisthecostoftransportingthemineproducttothetreatmentfacility,withtheminesintheEU

http://marketintelligence.spglobal.com/blog/costcompetivenessofeuropeanmines?utm_source=feedburner&utm_medium=email&utm_campaign=Feed

3/5

1/27/2017

CostCompetivenessOfEuropeanMines|S&PGlobal

benefitingfromcloseproximitytomultiplesmelting/refiningfacilities.EU28minesalsobenefitfromaccesstogoodinfrastructure,namelyroads,rail,a

ports.Forthisreason,countrieswithpoorinfrastructureorremoteminesitestendtohavehigherTCRC&Shipmentandoffsitecosts,astransporting
BYCONTINUINGTOUSETHISSITE,YOUAREAGREEINGTOOURUSEOFCOOKIES.REVIEWOURPRIVACY&COOKIENOTICE

productstotheendcustomerorsmelting/refiningfacilitiesismoreexpensive.

Royalty&productiontaxes:Costsfromroyaltyandproductiontaxesarebelowaverageforallcommodities,withtheexceptionofcopper,duetosta
Contact|FindaJob|SubscribetoBlogs

royaltysystemsthatarefavourabletomininginmostoftheEU28MemberStates.Inparticular,FinlandandSwedenhavenoroyaltiesoncommoditie
ABOUT US

CLIENT SOLUTIONS

OUR THINKING

PRODUCT LOGIN

REQUEST A TRIAL

coveredinthisstudy,whichleadstozeroroyaltyandproductiontaxcostsforironore(Figure2),asbothoperationscoveredhereareinSweden.
Search

Therelativelyhighroyaltycostincopper(Figure1)isaresultoftheminingtaxintroducedinPolandin2012,whichimpactsthebiggestcopperproduc
theEU28,KGHMsPolishoperations.Althoughthiscostcanbeinfluencedbyfeespaidtoprivatelandownersorothercompanies,byfarthebiggest
contributortothiscostisminingroyaltiesandtaxpoliciesofindividualcountries.

AspartofitsSTRADE[1]researchproject,S&PGlobalMarketIntelligencesMetals&MiningconsultingteamisinvestigatinghowtotranslatetheEU2
competitiveadvantagesforminingoperationsintoastrategytopromotemininginvestmentsintotheregion

[1]STRADERESEARCHPROJECT

SUBSCRIBE TO INSIGHTS

AUTHOR

Chris Hinde
Director of Reports, Metals & Mining
ViewAuthor'sFullBio

MOREARTICLESFROMTHISAUTHOR

BrokenBridges
HeavyMatterIronOre
CokingCoal,StarOfTheMonth(August)
HotMiningDealsInLatinAmerica

SHAREARTICLE

CATEGORY

Sectors
Metals&Mining

CONTENTTYPE

Blog

PREVIOUS

NEXT

Global Multichannel Video Market Reached One Billion Subs

Milestone...

IPTV Market Leader Report Top Vendors Increasing Their L

http://marketintelligence.spglobal.com/blog/costcompetivenessofeuropeanmines?utm_source=feedburner&utm_medium=email&utm_campaign=Feed

4/5