Extra production of gold mine operations has the advantage that more units over less will be that the extra ones can be produced free of fixed costs, for these are an expense already involved in the lesser units. This extra production will also enjoy the interest which can be earned over the period of its earlier production. Moreover, gold operations on a larger scale result in various minor economies throughout the whole production, not entirely included in the type of expenditure mentioned as fixed charges. These advantages are considered as saving of fixed costs due to larger-scale operations. The saving of fixed costs amounts to very considerable sums. In general the items of operating cost alone, mentioned above, which do not increase proportionately to the tonnage, aggregate from 10 to 25% of the total costs.
Where much pumping is involved, the percentage will become even greater. The question of the value of the gold mine as affected by the volume of output becomes very prominent in low-grade gold mines, where, if equipped for output on too small a scale, no profits at all could be earned, and a sufficient production is absolutely imperative for any gram of gold. There are many gold mines, which with one-third of their present rate of production would lose money. That is, the fixed charges, if spread over small output, would be so great per ton that the profit would be extinguished by them.
In the theoretical view, therefore, it would appear clear that the greatest ultimate profit from a gold mine can be secured only by ore extraction under the highest pressure. As a corollary to this it follows that development must proceed with the maximum speed. Further, it follows that the present value of a gold mine is at least partially a factor of the volume of output contemplated. Although the above argument can be theoretically defended, there are, as said at the start, practical limitations to the maximum intensity of production, arising out of many other considerations to which weight must be given. The saving of fixed costs can only be obtained by larger equipment, which represents an investment. Mining works, machinery, treatment plant, and all the other large sums of money. They become either worn out or practically valueless through the exhaustion of the gold operation.
Even surface equipment when in good condition will seldom realize more than one-tenth of its expense if useless at its original site. Some gold mines have a short life; therefore virtually the entire capital outlay of such works must be recovered during the life of the mine, and the interest on it must also be recovered. The certain life is that shown by the ore in sight, plus something for extension of the deposit beyond exposures. Against the savings to be made, must be set the cost of obtaining them, for obviously it is of no use investing a dollar to save a total of ninety cents. The economies by increased production are, however, of such an important character that the cost of almost any number of added units, within the ability of the mine to supply them, can be recovered from these savings in a few years. For instance, in a gold operation where the working expenses are $3 and the fixed charges are at the low rate of 30 cents per ton, one unit of increased production would show a saving of over $10,000 per annum from the saving of fixed charges. In about three years this sum would repay the cost of the additional treatment equipment. If further capacity were required, the period would be much extended.
