sharing in governance of extractive industries

STRADE Policy Brief- EU mine cost competitiveness

Mining in the European Union is perceived to be costly and uncompetitive when compared to other jurisdictions such as Australia and Canada. As Figure 1 shows, the EU accounts for a small percentage of global production of Iron Ore, Gold and Nickel. Perceptions of high labour and production costs lead many to believe that the EU is an unfavourable mining destination. Reliable power supply, infrastructure and access to advanced technology should support a successful mining industry in Europe. The STRADE project’s recently published policy brief examines the cost competiveness of mines operating in the EU against other countries. The analysis led to some interesting results.

SNL compared EU mines on a cost curve to other similar sized global operations. The study focused on five commodities; copper, nickel, iron ore, gold and lead/zinc. Cost curves demonstrate the cost spilt of extracting a commodity. The analysis is based on SNL’s Mine Economics dataset, which covers granular cost estimates of almost 600 mines spread across the globe. The dataset is constructed by using a detailed bottom up modelling approach; looking at each individual mining operation’s flow sheet, equipment and geographic location, the model calibrates modelled costs to reported cost information. Mines/countries towards the right hand side of the horizontal axis exhibit more expensive cost structures than those towards the left hand side of the scale (see Figure 2).  

The EU is more competitive in iron ore production, relative to other countries, in the five metals studied. This is surprising given the two largest iron ore mines in the EU are underground mines, which is a more costly mining method than open pit mining (See Figure 2). Gold mining in the EU is positioned further right along the cost curve. This indicates high costs of operating a gold mine in the EU, compared with other gold producing countries (see Figure 3).

For copper, the EU has a higher ‘royalty and production taxes’ cost in comparison to countries with similar total mine costs (Canada, Brazil and Zambia). Whilst EU28 labour costs are similar to those in Canada and Brazil, its costs associated with ‘reagents’ are lower.

Lead and Zinc usually extracted together, have higher per- unit mine costs than Australia and Chile and similar costs to Peru. In terms of individual cost components, the EU28 exhibit higher labour costs than Australia, Chile and Peru, and higher ‘other onsite’ costs than Australia and Chile, although these are lower than Peru.

EU Nickel mines are placed towards the right end of the horizontal axis. The region is slightly more expensive than Canada (which is a major nickel producer) but less than New Caledonia (another major nickel producer). In terms of cost components, energy costs are relatively high for the EU28 mines, while labour costs are lower.

The research shows that for the majority of these commodity’s the cost of extracting and refining was similar to costs in other industrialized regions such as Canada and the USA. Although for all commodities, costs were on the right hand side of the cost curves they still exhibit competitive cost structures.  The full policy brief can be found here -->

STRADE PB8: Cost Competitiveness of Mining Operations in the Europe...

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