Lomas: Inventory and risk in mines | Mining


Other drawbacks of inventories

WIP inventories use up cash and distort cost reports, which are based on how much ore comes out of the mine, and not what is half-mined, drilled, or filling up a stope. ROM inventories tie up cash for years, and pose a financial risk when prices fall.

However, WIP and ROM inventories have additional problems. WIP can complicate grade, tonnage, production, and other operating ratios, which managers use to identify problems. Bolt usage, explosive consumption, labor hours, and other measures are tracked on a per-ton basis, and numbers are distorted if the tons are not moved when the resources are expended.

Stockpiles can cause even bigger problems. Sulfides can degrade or oxidize in stockpiles, so processes where sulfides in the ore provide fuel can cost more than expected as fuel has to be added to compensate for the lost sulfides. Some stockpiles can solidify enough that they cannot be easily loaded for transport. Volumes and grades in the stockpiles may vary from what is on the books, since both measurements are sometimes notoriously imperfect, and slight deviations from expectations may result in significantly less revenue.

Commodity values, taxes, and regulations all change, and the larger the stockpile, the greater the risk that a today’s ore may not be profitable 10 years from now. Chile’s Senate is considering a bill to finance the country’s pandemic-related costs by raising copper royalties to much as 75%, while the president-elect of Peru has vowed to increase taxes on copper mines. Nevada’s new tax on gold mines may double the current level, depending on the gold price.



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