Cost of Producing Concentrates from Ore

Cost of Producing Concentrates from Ore

From the viewpoint of mineral economics, the ultimate and significant production cost is that per unit of metal produced rather than the cost per ton of ore treated. This viewpoint is natural to processors of ores whose final product is refined or unrefined metal, whether they be companies engaged solely in smelting, or integrated companies engaged in mining, milling, and smelting operations.

Mine operators, on the other hand, are accustomed to using costs per ton of ore as a basis for measuring the efficiency of then operations and for controlling them. Many companies are engaged only in mining or in mining and milling, and their final product is then either ore or concentrates; hence, cost per ton is the natural and convenient basis to employ. However, the value of ore or concentrate depends on the salable metal it contains, and the measure of profit or loss is the cost per unit of metal in relation to the price at which it can be sold.

For gold and silver mines whose only product is bullion produced from amalgamation or cyanidation, it is relatively simple to set up unit costs on the basis of an ounce of gold or silver, and some gold-mining companies now so state their costs. The operating staff is thus reminded that maximum efficiency results from minimum cost per ounce of metal rather than minimum cost per ton of ore, which should have a salutary effect when such questions as control of dilution and grade of ore in mining and loss of metal in milling are considered.

Cost per ounce of gold is given for a few gold mines in North America in table 17 of Bulletin 363.

Croston recently published much more comprehensive data on costs per ounce of gold, in which are included data from most of the largest gold mines in the world.

At the other extreme from gold mines producing bullion are those mining and treating complex ores containing, for example, silver, gold, lead, zinc, and copper. It is obvious that it would be impracticable, if not impossible, for mines of this type to maintain a mine and mill cost-accounting system in which costs would be prorated accurately to the different metals, and it is doubtful whether such accounts would serve any useful operating purpose. For general analysis of operating over periods of a year or more, proration of costs may be useful. Gardner has presented prorated costs for a number of copper-mining companies in tables 63 and 64 of Bulletin 405.

In the same bulletin, tables 53 to 62, inclusive, present additional data on cost of producing a pound of copper. Table 57 of this series is reproduced below.


Many companies mining ores of the base metals containing precious metals that are recovered as a byproduct, credit base-metal production costs with the return from tho precious metals. While this is a convenient practice for general accounting purposes, it is of little use for cost control at the mine.

Costs per pound of lead and zinc (not including smelting) are given for seven companies in table 32 of Bulletin 381.

The following brief discussion and tables giving production and overhead exists per ton are presented, therefore, with due recognition of the fact that the ultimate economy of a mining enterprise depends upon tho cost per unit of metal and the net value of the metals produced.

Cost data given in the preceding sections of this bulletin covered operating costs only, that is, expense at the mines and mills—wages and salaries, including workmen’s compensation; costs of mine and mill supplies and power; maintenance; and mine and mill office salaries and expense. The circulars from which most of these data were abstracted were intended to cover only operating costs under direct control of the resident management with a view to showing the relationship between (1) natural and economic conditions influencing the methods used and the results obtained, (2) the methods and practices employed under the conditions described, and (3) the resulting operating costs.

Other costs must be added, however, to determine the ultimate cost of production. These include principally salaries of corporation officials and other head-office expense, depreciation, interest charges, legal expense, and taxes. Since these were included in only a few of the information circulars used as a basis for this bulletin, published annual reports of a number of mining companies have been resorted to for the data in table 61, which follows.

In this table, data from annual reports of a few companies have been selected to illustrate broadly the variations in the ratio of overhead to operating costs; many companies do not publish cost data in enough detail to allow distribution under the headings used in the table. Because of variations in accounting methods of different companies, tho distribution of some cost items under these headings is somewhat arbitrary in certain instances, most of which are covered by footnotes.

Operating costs in the table cover all exploratory work (except exploration of outside properties), development, mining, crushing and milling, workmen’s compensation, and all expense incurred at the mine and mill, including local administrative costs such as salaries of mine executives and office staff. In some of the reports, workmen’s compensation is carried as an overhead cost at the executive offices of the company, but since it is in reality an additional labor cost, it has been included in the table (where the reports permitted separation) as an operating cost.

Most of the reports include property and local taxes and insurance with operating costs, but in the table they have been included with income and other taxes.

Depreciation is included as an overhead cost directly chargeable to production, since it is contemplated that the sums set aside are to be used for replacement of worn-out or obsolete equipment to permit continuing efficient production.

Amortization items have been added to the table but are not considered a part of the total production cost, although it is recognized that funds for amortization of the investment must come from the profits realized from production and sale of ore or metal. Amortization will be discussed briefly in a later section of this bulletin and is introduced at this point merely to call attention to the fact that it is an item that must be considered with costs and realization from sales in order to determine profit or loss on the operation.

Exploration of outside properties is considered here to be a use of surplus to prolong the life of the enterprise by discovering additional reserves of ore rather than a production-cost item. Thus, instead of taking funds from surplus for investment in bonds or other securities, which, together with accumulated interest and dividends, provide a sinking fund for ultimate return of the invested capital, many mining companies employ part of their surplus in an endeavor to develop new mines. Amortization or sinking funds are provided by allowances for depiction and may be accumulated by charging off a fixed amount per ton of ore or unit of metal produced or by annual charges. Only a few of the reports from which data are taken for the table showed charges for depletion, and some merely set up a charge for amortization of plant and buildings. Some of the older companies probably have charged off all development, including major shaft-sinking and other projects, in the years during which the expenditures were incurred, whereas others have not, so that the data in the depletion column of tho table are not complete or comparable as between different companies.

Interest received and other income often are reported as a credit against production costs, but because of the differences in methods of accounting and in the sources from which such income is derived by different companies, and because in most instances it is not a direct result of the year’s ore-production operations, the figures are given under “amortization items” in order to make the not of all items in the table balance the figures in the annual reports.

The foregoing suggests the subject of accounting systems for mining companies, which is not within the scope of the present bulletin. In this connection, reference is made to an earlier Bureau of Mines publication.