Skyrocketing fuel prices eat mine's profits

Having a hard time dealing with rising fuel prices?

Be glad you’re not trying to pay the fuel bills for Cripple Creek & Victor Gold Mining Co., which operates a fleet of 10 300-ton dump trucks that haul gold ore from its open-pit mine between Cripple Creek and Victor to a nearby crushing facility. Each of the mine’s trucks burn three-quarters of a gallon of diesel fuel a minute, which means each truck uses more than $200 in fuel during an hour of operation. That’s about $50,000 a day for the fleet.

Skyrocketing fuel prices have increased the cost of producing gold at the mine by a third during the past year, said Larry Newcomer, general manager of Cripple Creek & Victor Gold. Every $1 increase in the cost of a barrel of oil increases the cost of producing an ounce of gold at the mine by about $1. That means the cost of gold being mined now will be more than $400 an ounce when it completes the production process in two years.

That wouldn’t be so bad if the mine’s parent company, AngoGold Ashanti Ltd., hadn’t sold off much of the mine’s production under hedging contracts at $450-$550 an ounce. That means gold produced at more than $400 an ounce will barely produce a profit and might even result in a loss depending on how much higher fuel prices climb in coming months.

“Four years ago, we were paying 85 cents a gallon for fuel and now we paying $4 a gallon. The price of gold hasn’t kept up,” Newcomer said, noting gold prices have gone up a little more than a third as fast as fuel prices during the same period.

Gold mine gets voluntary industry certification

AngloGold Ashanti Limited's Cripple Creek and Victor Gold Mining Co. has been certified as compliant with the International Cyanide Management Code.

An audit of the operation near Victor was conducted by an independent third party and found full compliance with the code's principles and standards of practice. The code is a voluntary industry program for companies that produce gold using cyanide . The International Cyanide Management Institute administers the code.

Cripple Creek mine hits milestone

Last week, about 250 people toured the Cripple Creek and Victor Gold Mining Co.’s operations in Victor. The event celebrated a company milestone — 3 million ounces of gold have been poured since operations were resurrected in 1994.

See a video and photo from the event at gazette.com.

Here are some facts about the operation:

Company ownership: Cripple Creek and Victor Gold Mining Co. is a joint venture between Golden Cycle Gold Corp. and AngloGold Ashanti (Colorado) Corp.
Acres owned and permitted: 5,847
Production: 250,000 to 300,000 ounces poured per year
Annual operating costs: 2004, $84 million; 2006, $100 million; 2007 $105 million; 2008 estimate $115-120 million
Current market price of gold: About $640 an ounce
Company profit margin: $100 to $150 an ounce
Exploration drilling: To 1,500 feet deep
Gold ore crushed per day: 65,000 to 70,000 tons
Gold ore needed to produce an ounce of gold: 60 tons of ore, and generally 120 tons of additional rock are moved for one ounce
Cost of one new 240-ton haul truck: $2.7 million
Cost of one truck tire: $30,000
Annual diesel fuel cost for 18 haul trucks and other heavy equipment: More than $20 million
Employees: 325, of which 120 are heavy-equipment operators
Annual payroll: $23.7 million in 2006, including benefits
Blasting: Averages once or twice daily, between 7 a.m. and 4 p.m., except Sundays