Direct production costs
Direct production costs were $28 million higher this year ($10 million higher this quarter) mainly because higher production at Las Cruces increased variable electricity, consumables and royalty costs, somewhat offset by the impact of the weaker euro relative to the US dollar.
Charges for mine rehabilitation and other non-cash charges
These charges include accruals for asset retirement obligations, provisions for severance and retirement and other non-cash expenses. We recorded an additional $17 million this year for post-closure liabilities at our closed properties, including $10 million in the fourth quarter. $7 million of these costs related to the decrease in discount rates and the US dollar to Canadian dollar exchange rate we applied in determining the liabilities in the first nine months of 2012. Under IFRS, we are required to revalue our asset retirement obligations for changes in market risk-free interest rates - this discount rate decrease reflects the current low interest rate environment. Additionally, this quarter we recognized a $4 million increase in our estimated closure obligations at Troilus for ongoing treatment of tailings effluent for suspended solids and associated labour costs, as well as increased estimated cash flows required to remediate our other closed properties. In 2011, we recorded increased asset retirement obligations of $16 million: $5 million for closure liabilities at Troilus related to an increase in our estimated closure obligations for ongoing treatment of tailings effluent for suspended solids and associated labour costs and $11 million from a decrease in the discount rates we applied.
2013 outlook for cost of sales (excluding depreciation)
We expect consolidated direct production costs to be slightly higher in 2013 because higher production at Las Cruces will increase total variable costs, primarily electricity, consumables and royalties. We also expect slightly higher direct production costs at Cayeli in 2013 due to increased labour and electricity costs, and increased costs associated with higher expected tonnes processed in 2013 than in 2012.
Our budget for 2013 assumes our costs at Pyhasalmi will be similar to 2012.
Certain variable costs may continue to affect our earnings, depending on metal prices:
- royalties at Cayeli are affected by its net income- royalties at Las Cruces are affected by its net sales.
The total amount we report in US dollars will also be affected by the value of the euro and the Turkish lira relative to the US dollar.
Additionally, changes in market risk-free interest rates could significantly increase or decrease our costs related to mine rehabilitation at our closed properties. At December 31, 2012, the interest rates we used to value our asset retirement obligations at our closed properties ranged from 1.1 percent to 2.4 percent.
Higher depreciation
---------------------------------------------------------------------------- three months ended December 31(thousands) 2012 2011 change----------------------------------------------------------------------------Depreciation by operation Cayeli $4,702 $5,391 -13% Las Cruces 22,331 19,129 +17% Pyhasalmi 3,046 2,315 +32%---------------------------------------------------------------------------- $30,079 $26,835 +12%-------------------------------------------------------------------------------------------------------------------------------------------------------- year ended December 31(thousands) 2012 2011 change----------------------------------------------------------------------------Depreciation by operation Cayeli $24,692 $21,337 +16% Las Cruces 92,037 74,931 +23% Pyhasalmi 10,243 9,001 +14%---------------------------------------------------------------------------- $126,972 $105,269 +21%----------------------------------------------------------------------------
