In any business it costs to run an operation.
The prices can be very substantial depending on the industry you are in.
Some of the most expensive operations are those which involve lots of machinery, psychical labour and use of tons of electricity and power.
Here enters the gold industry; it costs a lot to find a little ounce of gold under tonnes of earth.
When you decide to get into gold investing, by buying gold coins, bullions or certificates then a part of your research or education is to understand the expenses of a mining company; especially if you are considering buying shares in it.
They basically have two areas that they report on, and this is the cash costs and total costs.
When you examine each closely, you begin to understand the difference in both.
Expenses that relate to running the mine, onsite is called cash costs.
Gold mining companies have to spend money on constantly supplying labour, explosives, electricity, machinery, and fuel; just to name a few expenses.
In recent years, their expenses skyrocketed when oil process and energy costs increased, significantly.
Because of this, minerals such as gold, silver, copper, and iron ore increased in costs as well.
It takes no little penny to run an open pit gold mine.
It also uses a substantial amount of energy to do so.
One has to take in account that all the gold deposit is not clustered in one position; this is not the stuff of movies where a part of the earth falls away and you see a large chunk of gold.
What happens is that trucks have to remove tons of waste and debris to even get to an ounce of gold.
The machinery, operators, large trunks and earth movers carry and use thousands of gallons of fuel a day; and no less than quarter of the costs go into this aspect of the business.
Now, let us look at underground mines.
Whereas open pit mines use more trucks and fuel; underground mines use more electricity.
They can be miles underground and earth and minerals have to be transported to the surface for sorting and processing.
Underground mines will use fewer explosives and more diggers; but open pit mines use a lot of explosives.
The content of these explosives may include ammonium nitrate, deriving from ammonia which is a natural gas.
And gas prices were on the rise, the same time that oil prices were being increased as well.
Other important and necessary expenses of a gold mining company include cyanide, which leaches the gold, separate from the ore.
Labour costs are higher in underground mines, than open pit mines.
The costs for equipment will be higher in open pit mines.
Total costs, includes everything onsite and offsite that the company pays for.
It can take up to one billion dollars to get a mine operational, and this is before that mine starts producing.
However the debt will be paid when the mine becomes productive.