Denver (Kitco News) - With cost-cutting for producers at the forefront of the conversation in the mining industry following gold’s second-quarter plunge, McEwen Mining Inc. (TSX, NYSE: MUX) has seen costs lowered at its Mexican-based El Gallo 1 and 2 projects.
Ian Ball recently appointed President of McEwen Mining at the company’s El Gallo project back in January
Ian Ball, recently promoted to president of McEwen Mining, helped build the restart of El Gallo 1 and played a large part in the discovery of El Gallo 2. Having brought these projects to light, Ball was well positioned to reduce costs.
Using the Merrill-Crowe refinery process, Ball went to suppliers seeking an alternative at El Gallo 2.
“They’ve come back with a new design that would have us pour silver and gold more often, so, rather than once every two weeks, it’d be once every couple of days and that would save us $6 million since everything just gets compressed,” Ball told Kitco News on the sidelines of the Denver Gold Forum.
The company further sliced costs, selecting a type of crusher that would save the company money on cement and steel required.
“Sandvik, a company that does crushers, we went back to them to see what they could do reduce costs and they’ve now come out with a module of crushing, which is pretty much an off-the-shelf product that you can’t modify, but luckily it meets our needs,” Ball said. “It will save us $3 million to buy the equipment and another $4 million to install it.”
McEwen Mining is also benefitting from the downturn in the industry.
“You’re seeing cost declines. Cyanide is the biggest cost for producing in Mexico, and costs have come down $6 per kilogram to $3 per kilogram, so we’ve seen big cost savings there,” Ball said. “Drilling costs are down 40% year-over-year, that’s nothing that we’re doing ourselves but we’re benefitting from the industry slowdown.”
At El Gallo 1, Ball believes that investment in the mine will bring around cost savings.
“In the same way we can optimize our projects,” Ball said. “At El Gallo 1, we put in $5 million to increase the capacity by 50%, which was a good source of funds, so it’s just trying to find different ways to do it on lower budgets.”
Ball expects El Gallo 1 will produce 30,000 gold equivalent ounces this year and will reach 75,000 gold equivalent ounces by 2015.
As for the current gold price environment, Ball thinks that signs of a bottom are in sight.
“I think we’re starting to see the signs of a bottom – I’m not saying we’re there now – but a year ago if you asked someone if they thought things would turn around, they would say yes,” Ball said. “You ask someone today and the answer is no and that’s a step in the right direction.
“How long it takes to get through, I don’t know, but the US debt is almost $17 trillion, the deficit was reduced somewhat because of the payments Freddie Mac made, now we’re starting to go back in the other direction, nothing has really changed,” Ball added.
"The outlook for gold is good, the short term is anyone’s guess.”
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By Alex Létourneau of Kitco News firstname.lastname@example.org