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The Gold Revolution


 -- Published: Monday, 14 December 2015 | Print  | Disqus 

By JL Yastine

Maybe you saw the new video a few weeks back — Amazon mocked up yet another drone aircraft (they demoed the first one in 2014) and videotaped it dropping off a tiny package from its robotic pincers in someone’s backyard.

Impressive, sure. To me, though, the point was that investors will see the video and think “This is the future,” so as to justify buying the overpriced stock.

What about swarms of giant driverless mining trucks, hauling off 300 tons of ore across a busy working mine? Semi-robotic drilling rigs chewing away deep underground?

That’s not the future. It’s today in a handful of big working mines. And unlike Amazon’s PR-based stunts, these developments are starting to have a big (though unappreciated) impact on mining company bottom lines…

I’ve been watching these developments in mining tech for a long time. To me, the turning point came last month, when Gold Fields, a big South African mining firm, announced its latest quarterly results. What caught investors’ attention was news that cash outflows at one of its most important mines fell 26% while production at that particular mine climbed 42%.

The name of the mine is South Deep. At nearly two miles down, it’s one of the deepest such operations on earth — which also means it’s one of the most expensive to operate. In the last few years, Gold Fields invested $1 billion in mining automation technology with the aim of driving down its labor costs.

Looks like the company succeeded.

The investments helped the company boost its overall gold production by 4% while its “all-in” costs dropped 9% to $961 an ounce. The stock is currently 20% above its lows but well below its all-times highs in the mid-30s, indicating that this security is far from overvalued and there’s plenty of room for it to climb as the company continues to cut costs through automation.

A Revolution in Mining

Like the most important revolutions, this one will not be televised. But mining insiders, and not just those in the gold industry, are certainly taking notice. As Mining Weekly noted last week, 30% of South Africa’s platinum mining now comes from highly automated, mechanized operations.

In the iron-ore sector, Rio Tinto is now the world’s largest owner of “autonomous haulage system trucks,” which it now uses at two of its mines in Australia. And Suncor Energy, the big Canada-based oil sands outfit, just signed a five-year deal with a Japanese manufacturer to buy “autonomous-ready” haulage trucks.

Autonomous haulage trucks are probably the most obvious example of high-tech mining. Though it’s not a gold mining company, the recent comments of Suncor’s CFO demonstrate the powerful saving in labor costs. The average driver of a “heavy hauler” truck earns $200,000 a year. Suncor has about 1,000 such drivers. You do the math.

Gold Fracking

OK, that’s not the technical term the industry uses for yet another technology-laden effort to reduce costs in gold mining — but I like the analogy.

Energy fracking is all about unlocking the crude oil and gas locked away in formations of shale rock. The stuff has always been there — it’s just that it took time to figure out the technology to get it out at a reasonable cost.

Well, the new techniques used by a small but growing number of gold companies also involve a new technology — called non-blast mining — to get at “the stuff that’s always been there.”

Here’s how it works in old-school mining: As miners go after the veins of gold-bearing ore, they intentionally dig the mine in such a way as to leave behind massive “pillars” of rock to support the ceiling of the mine — otherwise there’s risk of a collapse. The pillars will also withstand the stress as miners bore into the mineface with their drills, set off their explosives and then cart away the blasted rock.

As you can imagine, it’s dangerous. It’s also wasteful. Some of the blasted rock contains gold; much of it does not. But the company has to haul out and process all of it. Likewise, the rock pillars created during the mining process also contain gold — all of which has to stay in place for the stability of the mine.

But what if you could use computer-assisted drilling platforms to precisely extract only the gold-bearing stuff and leave the rest?

That’s the kind of technology Gold Fields is using at its South Deep mine. But AngloGold Ashanti, Harmony Gold and a few others are all employing similar systems. A team of eight, manning the drilling machine and its digital systems, replaces dozens, even hundreds, of miners. And as for the gold-bearing “pillars” of rock supporting the mine — the mining company excavates the pillars and replaces them with a concrete-like slurry that hardens in place.

The CEO of Harmony told Mining Weekly recently that the technology is a game changer. It could double the life of its deep Kusasalethu mine in South Africa, and also double the kilograms of gold it can extract there.

The Future of Gold

What’s the takeaway here? The market’s perception about gold mining couldn’t be worse. You’ve read plenty about why that’s the case from Jeff Opdyke’s observations about the Federal Reserve and all the rest. Those perceptions are already factored in to the price of gold-mining stocks.

What hasn’t been factored in yet? The kind of words investors love to hear — enhanced capacity, higher productivity and lower costs that come with the new mining technologies. As the market changes its perception about gold, you can expect these to become the watchwords for the next cycle higher. The gold revolution is going to be led by new growth in technology.

Kind regards,
Image for JL Yastine Sovereign Investor
JL Yastine
Editorial Director, The Sovereign Society


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 -- Published: Monday, 14 December 2015 | E-Mail  | Print  | Source: GoldSeek.com

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