Turning to the Company's Marathon PGM-copper project in Canada, Mr. McAllister commented, "Our efforts at Marathon are focused primarily on two fronts right now -- advancing the joint federal/provincial environmental review of the Marathon project, and completing the definitive engineering study now underway. Marathon remains our key palladium priority outside of Montana and we expect completion of an updated engineering study in the third quarter of 2013."
Regarding the Company's Altar copper-gold exploration project in northwestern Argentina, Mr. McAllister noted, "Although the Altar exploration and related support expenditures were budgeted at about $25 million for 2012, in the end we spent about $17.5 million (including administrative expenses). Altar continues to provide a low-cost insurance option going forward, with significant upside resource potential as last year's successful drilling demonstrated. We will continue to employ a highly disciplined exploration program there to determine prudently the extent and quality of the Altar system without diverting resources from our core PGM commitment."
"Importantly, with the recent financing proceeds in hand, we now have extremely strong balance sheet liquidity, which in conjunction with our expected cash flows from operations, should enable us to aggressively pursue our PGM growth initiatives at a time when many of our industry peers are facing significant operational and financial challenges."
Commenting on costs Mr. McAllister observed, "Our advance guidance for 2013 total cash cost is $560 per ounce at a production level of 500,000 ounces of palladium and platinum, which would represent about a 16% year-on-year increase over the $484 per ounce averaged in 2012. I noted earlier that the mines' 2012 average total cash cost of $484 per ounce (a non-GAAP measure) was about 15% higher than the $420 per ounce experienced in 2011.
"These back-to-back annual increases in total cash cost per ounce of 15% in 2012 and almost 16% in 2013 are in line with our planning. As already noted, there are a number of cost pressures inherent in our business that all underground mining companies share. Our mining costs are driven in part by the ongoing effect of ever-expanding operations underground ("receding face"); at times by lower cut-off grades made possible by higher prices; by contractual wage increases; and underlying inflation in materials costs. These higher costs also in part reflect the investment in our new-miner training program necessary both to support current production levels and to prepare for the Company's three Montana-based PGM growth initiatives.
"It is useful to take a longer view of the Company's cost growth. If the Company's developed state is sufficiently robust, then during temporary down cycles in metals prices, some capital and operating costs can temporarily be scaled back in order to conserve cash. Ultimately, this deferred spending must be caught back up or production rates will suffer. To some extent, capital and operating expenditures during 2012 and 2013 include additional maintenance and infrastructure spending to compensate for cutbacks made to conserve cash during the economic downturn in 2009 and 2010. The cumulative annual growth rate in total cash costs per mined ounce for the five years from 2008 projected through 2013, taking into account the economic downturn and subsequent recovery, averages about 7% per year -- about what would be expected assuming low underlying inflation and taking the receding face issue into account. Other analyses of relative costs suggest that the Company's cost structure has become increasingly more competitive within the PGM industry over the past several years as competitor costs have escalated sharply. A 7% annual growth rate in cash cost per ounce over that period also compares very favorably to the much higher cost growth many other companies in the mining industry experienced over that period.
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