Trends in Australian Underground Mining Costs

Underground mining costs have increased over the years, but it is difficult to quantify the increase because they also vary according to mining rate and the mining method, particularly where cemented backfill is used. AMC has recently completed an analysis covering the period 1980 to 2016, using data from 82 Australian mines. All mines used drill and blast methods. Sublevel caving and block caving mines are excluded from the analysis.

Preliminary analysis showed that unit costs fall into two groups:

  • Mines less than 0.25 Mtpa, where narrow-vein or otherwise more labour intensive methods are used.
  • Mines greater than 0.25 Mtpa, which generally use efficient sublevel open stoping methods.

The unit cost in small mines has increased at an average $6.50/t per year, while the increase for large mines has been $3.00/t per year, over the 36 year period. The difference between the two data sets seems reasonable given the changes in labour costs and mechanisation benefits over that time. These costs are “as reported” in monthly operations reports, in the dollars of the day. Once corrected for inflation at the Australian CPI, the increases are more like $3.50/t per year for the small mines and $1.40/t per year for the large mines, expressed in 2016 dollars.

Thus we can say that underground mining costs in Australia have increased significantly faster than the inflation rate, despite improvements in technology. It is likely that the same would be true for a country such as Canada which has advanced its technology at the same rate. So where have we gone wrong? Is it a reflection of inefficiencies incurred through improving safety, which has improved dramatically over that time? Has the skill level of planners and operators fallen so fast? Are our big machines actually more expensive to operate than the modest equipment of thirty years ago?

Using the annual average increase in unit costs, it was possible to normalise the data set to 2016 values. For all but the smallest mines, this showed that the 2016 annual cost is best modelled as a fixed and variable cost of the form:

Annual cost ($M) = 23 + 50 x rate (in Mtpa)

This relationship, with the source data, is shown in the figure below. It is interesting that site-specific variability tends to mask any economies of scale after about 0.5 Mtpa, although the overall trend falls from $100/t at that rate to an asymptote around $50/t. Perhaps the lesson here is that it is more important to get things right than to push the production rate in the hope of achieving economies of scale.

 Peter McCarthy

Chairman Emeritus / Principal Mining Consultant