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Working Paper 222 - Economies of Scale in Gold Mining
Mergers and acquisitions news have become ubiquitous in the mining industry. In some commodities (such as steel and iron ore), global production has become increasingly concentrated within a small number of larger firms. A large part of these concentrations have been driven by vertical integration, especially in steel, to reduce cost for key inputs such as iron, ore and manganese (Crompton and Lesourd 2008; Gajigo et al. 2011). In addition to mergers and acquisitions, the average sizes of mines have become larger. As documented in Crowson (2003), the number of mines has decreased while the average size of mines has increased significantly for a number of minerals, including gold. Since the overall global mineral production is growing over time, this implies that the average output per mine has gone up. It is therefore likely that economies of scale may be present, with the unit costs declining with the level of production.