Cost reductions as a response to the end of the commodity price boom.


The recent publication of the 3rd edition of ICMM's The Role of Mining in National Economies ( (hereafter RoMiNE3) provides US with the welcome biennial review of the global situation as it affects the large mining and metals industry. In addition to its regular update of the Mining Contribution Index (MCI) that the ICMM has pioneered, this year's publication also affords us an insight into two aspects of the recent ending of the commodity super-cycle that have gone relatively unnoticed. This blog summarises what RoMiNE3 says about the impact of lower commodity prices on the costs of producing minerals. A later blog ( will 8comment on the impact of lower commodity prices on new exploration, development and research activity in the industry.

From rising to falling costs

The second edition of RoMiNE ( published in 2014 discussed factors that had tended to increase production costs, as high metal prices gave the large mining companies considerable headroom to exploit more difficult resources in existing locations or more remote resources elsewhere, and generally to sideline worries over costs.

However, this situation has changed radically since prices began to decline in 2011/12. The case of iron ore as depicted in Figure 1 below typifies that change. For iron ore there was a 31% increase in the weighted average costs of production in the boom period 2008-12. But as the Figure shows this increase was sharply reversed in the next three years through 2015--specifically that period saw a dramatic overall cost decrease of 38%.

Most identified components of total costs contributed something to this overall decrease. But in percentage terms two of the largest decreases were seen in relation to energy costs (a 40% reduction) and royalties (a 48% reduction). Labour costs were also reduced, but only by a smaller percentage extent of 33%. () [1] (#[1] down) In short, mining companies benefitted from the lower prices of oil and gas inputs, were able to pass a significant part of the pain of lower iron ore prices to host governments (via the lower royalty) but still had to transfer some of the pain to their labour forces.

A different picture emerges for copper and gold mining

In the case of copper there was a 37% increase in productions costs during 2008-12...

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