The determination of the operating cost of gold operations and the determination of the recoverable gold contents of the ore are factors required to economy and feasibility of the project. Obviously, the aim of this analysis of valuation is to know the profits to be won, and the profit is the value of the gold won, less the operating cost. The latter involves development, mining, treatment, management. Further than this, it is often contended that, as the capital expended in purchase and equipment must be redeemed within the life of the mine, this item should also be included in production costs.
It is true that part of the supplies of a mine is of virtually negligible value when it is exhausted; and that all mines are exhausted sometime and every ton taken out contributes to that exhaustion; and that every ton of ore must bear its contribution to the return of the investment, as well as profit upon it. Therefore it may well be said that the redemption of the capital and its interest should be considered in costs per ton. The difficulty in dealing with the subject from the point of view of production cost arises from the fact that, except possibly in the case of some gold deposits, the life of a mine is unknown beyond the time required to exhaust the ore reserves. The visible life at the time of purchase or equipment is variable, yet the average equipment has a longer life than this, and the anticipation for every gold mine is also for longer duration than the bare ore in sight.
For clarity of conclusions in the value of a gold mine, the most advisable course is to determine the profit in sight irrespective of capital recovery in the first instance. The questions of capital recovery, purchase price, or equipment cost can then be weighed against the margin of profit. The cost of production depends upon many things, such as the cost of labor, supplies, the size of the ore-body, the treatment necessary, the volume of output, etc. If the gold mine is a going concern, from which reliable data can be obtained, the problem is much simplified. If it is virgin, the experience of other gold mines in the same region is the next resource; where no such data can be had, the engineer must fall back upon the experience with mines still farther afield. Use is sometimes made of the comparison ton in calculating costs upon mines where data of actual experience are not available. As costs will depend in the main upon items mentioned above, if the known costs of a going mine elsewhere be taken as a basis, and subtractions and additions made for more unfavorable or favorable effect of the differences in the above items, a fairly close result can be approximated.
Gold mine examinations are very often inspired by the belief that extended operations or new metallurgical applications to the mine will expand the profits. In such cases the paramount questions are the reduction of costs by better plant, larger outputs, new processes, or alteration of metallurgical basis and better methods. If every item of previous expenditure be gone over and considered, together with the equipment, and method by which it was obtained, the possible savings can be fairly well deduced, and justification for any particular line of action determined. The conditions which govern the working costs are on every gold mine so special to itself, that no amount of advice is very useful. Volumes of advice have been published on the subject, but in the main their burden is not to underestimate.