The Dow Jones Average tells you how much you are worth, how much money you made from wise investing, and how much you can spend on fancy goods and vacations. At least that is how it seems if you are at a party in Hawaii drinking with the thirty-something crowd. Now I am informed that the mining industry has its own Average or Index that can be used to decide on wise and unwise courses of action. I refer to the Mining Cost Service Indexes—hence the MCS-Is.

CostMine (a division of InfoMine) tabulates the MCS-Is from 1988. The MCS-I was set at 100 in 1994 for the Canadians and in 2004 for the Americans. Here is the August 2006 assessment of the MCS-I by Western Cost Mine.

“With all the talk of tire shortages, personnel recruitment problems, backlogs on new equipment orders, and fuel and lube prices up 30% in the past year, one would assume that mining companies are facing runaway cost inflation. According to newly released Mining Cost Service (MCS) Indexes, however, the situation is not as dire as might first appear. For instance, even though diesel fuel prices rose 25% in Canada and 33% in the U.S. over 12 months, the MCS Surface Mine Operating Cost Index increased only 5.6% for Canada and 7.0% for the U.S. in the same time period. The reason for this disparity is the tempering effect of labor costs. While prices for fuel and some supply items may fluctuate widely, the average cost of labor, which typically accounts for 50% of overall mine operating costs, tends to increase at a steady but relatively moderate rate. While some mines faced strikes and recruitment problems, with consequent spikes in wages, average mine wages increased only 2.2% in the U.S. in the past year, and 2.0% in Canada. No matter the reason, with base and precious metal prices soaring, cost increases are shrugged off quite easily by the mine operators.”

Mining Cost Service (MCS) Indexes

Operating Cost Index

Percent Change from 3 mo. ago

Percent Change from 1 yr. ago

June '06

Surface Mining U.S.

137.9

+1.5%

+5.6%

Underground Mining Canada

110.7

+2.2%

+6.2%

May '06

Surface Mining Canada

137.9

+1.5%

+5.6%

Underground Mining Canada

124.8

-1.1%

+1.0%

 

These data tell us that in the last twelve years costs have gone up nearly 38 percent at Canadian surface mines and nearly 35 percent in United States underground mines. Have salaries gone up pro rata, I wonder? I am told that since 1994, mine wages have increased 26 percent in Canada and 23 percent in the United States. Hefty increases in the cost of fuel (more than tripled in the U.S.), lube and electric power pushed the MCS-Is to the higher levels we see today. Thus looks like the miner did not get an increase pro rata the increase in the cost of mining—or of the cost-of-living—or the price of metals?