Physical extraction: the costs.
Extracting physical gold from a mine takes hard work and requires significant investment, energy consumption and use of labour. It starts with an exploratory phase
which can last for up to ten years, and is regarded as an investment with the aim that it will eventually recover the incurred costs and generate profit. It is far from guaranteed that the results of this activity will be economically viable, as just around 0.1% of areas under consideration turn out to be an actual mine.
The second phase consists of the construction of a structure that is able to extract the material. Often the cost-effectiveness of such a structure is uncertain because, on average, just 10% of active devices produce the amount of gold needed to justify the investment.
Once the effective economic viability of the site has been evaluated, it is necessary to apply for a national licence in order to build the actual mine and thus proceed to the extraction phase. The application necessitates a long and bureaucratic process, which is often influenced by the social and organisational conditions of the country where the operation is taking place. This process can take as long as five years to be carried out, without any certainty that the licence to work will be obtained.
Once the procedure for the application has been concluded and the licence obtained, the physical extraction of fragments of earth and rocks containing gold can commence. The ‘average life’ of a mine until its depletion tends to be between ten and thirty years; once the mine’s production cycle has come to an end and all the raw material has been extracted, the structure will be completely demolished through a process that usually lasts between one and five years.
The final stage of the gold production cycle is the reclamation of the lands upon which the activity has been carried out. This operation is essential in order to avoid significant damages to the nappes and the surrounding vegetation. This process may require a further five years to be fully implemented and comes with significant costs.
Hopefully, the general framework explained above clarifies each step of the process, the reasons why gold mining as a business requires significant investment and a long-term operational perspective, and why profit projections remain uncertain.