• February 27, 2019

Grade-cost relationships within Australian underground gold mines – A 2014-2017 empirical study and potential value implications

Published on February 27th, 2019

CSA Global congratulates Principal Geologist, Sam Ulrich and authors Allan Trench and Steffen Hagemann from the Centre for Exploration Targeting, School of Earth Sciences at UWA, UWA Business School and CRU Group on their recently published paper by Elsevier on “Grade-cost relationships within Australia underground gold mines-A 2014-2017 empirical study and potential value implications.”


  • Statistically significant relationships between gold grade and costs observed.
  • Three grade-cost categories proposed based on a mine’s cost sensitivity to grade.
  • Implications of grade-cost relationships for mine owners and those purchasing mines.
  • Current Ore Reserve gold grades indicate higher future costs for the majority of mines.


Quantitative analysis of publicly reported quarterly cost data from 23 Australian underground gold mines in the period 2014–2017 identifies consistent, statistically significant, relationships between gold grade and costs at the individual mines.

Higher gold grades are associated with lower production costs throughout the dataset. The resultant regression lines for individual mines in their simplest mathematical form are a power function (f(x)=axb), where a is the scaling factor and b the rate of growth or decay in the grade-cost relationship.

The general formula for the relationship between average feed grade and All-in Sustaining Costs (AISC) on a mine-bymine basis is:

AISC=exp(scaling coefficient) × Average Feed Grade(AISC decay rate)

The specific grade-cost regressions are, however, markedly different between mines. For the typical grade-range of underground gold mines, costs at some mines, ‘Type 1’, display greater sensitivity to feed grade (AISC decay rate ≤ −1.0).

At other mines the grade-cost relationship, although still indicating that higher grades are linked with lower costs, reveals lesser cost sensitivity to feed grade. We term these mines either ‘Type 2’ (AISC decay rate −0.6 to −1.0), or ‘Type 3’ (AISC decay rate>−0.6) where changes in feed grades correspond with lesser sensitivity to changes in costs. Although the underlying causes of the different grade-cost relationships remain uncertain, the contrasting relationships are clear and statistically significant.

The identification of these contrasting grade-cost functions has major implications for the gold industry. For example, the data imply that asset-level mine transactions in the gold industry have inherently different risk characteristics depending upon whether the transacted asset is a Type 1, Type 2 or Type 3 gold mine in grade-cost terms.

Disparities between recently mined grades and remaining Ore Reserve grades represent one dimension of the risk implications and the potential increase or decrease in mine value. At a steady gold price, the future cost performance of a gold mine will differ markedly based on the Ore Reserve grade to recently mined grade difference and the Types 1, 2 or 3 mine-type.

Grade-cost relationships within Australian underground gold mines-A 2014-2017 empirical study and potential value implications


Sam Ulrich – Principal Geologist

Sam Ulrich
Principal Geologist

Sam is a principal geologist with more than 20 years’ experience in the areas of exploration and resource development of gold, uranium and copper projects.  He has several years’ experience as a consultant and possesses a strong knowledge in the areas of project evaluations, the undertaking of VALMIN compliant valuations and Independent Geological Reports for IPO’s. Sam has worked extensively in Archaean orogenic gold deposits, epithermal gold and silver deposits in Indonesia and North Queensland. He has travelled globally to undertake assignments in countries, such as China, Laos, Indonesia, Argentina and the Kyrgyz Republic. With an interest in mineral economics, Sam is currently undertaking his PhD at the Centre for Exploration Targeting (CET) at The University of Western Australia linking geology to gold mine economics in Australia and New Zealand, with a focus on orogenic gold deposits.

Download paper here

JUNE, 2019

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