n the latest PwC sector report, Mine: A confidence crisis, as reported yesterday on Miningnews.net, there was certainly plenty to worry about on the profit front.

But the report also addressed one important ticking time bomb – and one that give miners some troublesome headaches.

You see, you can afford to cut a few corners in the good times. When investors are in a bullish mood, and banks and institutions are pantingly eager to get a piece of the commodities boom action, all it really takes is a well-crafted ASX announcement and a plausible power-point presentation. Soon they’re knocking down your door waving their cheque books.

When the mood turns sour, however, suddenly everyone starts getting a little picky about where they put (or keep) their money.

One aspect analysts and investors have suddenly begun taking a great deal of interest in is costs. We are all guilty of accepting cash costs uncritically. After all, with gold at knocking on the $US1800/oz door, analysts back in 2011 talking up copper at $10,000t, and so on, the cash costs in most cases seemed hardly worth worrying about. There was plenty of cream for everyone.

By stark contrast, we have all become very interested in those cash costs — and even more interested in whether cash costs are actually much of a guide.

PwC’s survey of mining analysts found 84% wanted some new “ground rules”

It was the conclusion that cost reporting and production information were considered the key areas where mining companies could improve their reporting.

“Cash costs are utilised by many, but investors have widely commented on fundamental flaws with such metrics,” PwC says.

“For example: inconsistency between companies’ calculations leads to confusion, and exclusion of sunk costs incurred to develop operations prevents the full picture from being understood.”

Yes, that realisation has been dawning over the past few months. Actually, one would be safe putting a modest wager on the cash costs “metric” soon being considered unacceptable, and replaced by an all-in costs calculation system.

This is a real time bomb for the miners — and for the explorers and developers, more so — and one that has sneaked up on the industry.

As PwC notes, gold companies have begun to acknowledge these shortcomings and, with the help of the World Gold Council, have started to adopted the “all-in sustaining cost” system.

But is this enough?

The report says the new “metric” goes a long way to addressing the cost disclosure problem, but even then questions whether this fully represents the real cost situation.

Those companies adopting the all-in system reported costs on average 56% higher than previously (in one case, it was a 70% rise).

PwC wants to know whether that still captures all the sunk costs.

As the report notes, significant management judgement is required to allocate the costs across the product base. However, while we might get an all-in cash cost, we still don’t know how these allocations are made and how the reported figures reconcile to the primary financial statement. Without that, PwC concludes, “transparency is lost”

The report’s editors say they already are detecting “divergent application”.

“This has led some observers to believe this metric does not go far enough to address their initial concerns,” the report says, “allowing the industry to hide the fact that it is costing far more to produce than they are willing to admit to.”

One analyst surveyed for the report has started including project capital, not just sustaining capital, in his analysis.

The report really nails down the problem.

Yes, we have all started to get snippy about the old cash cost ploy and companies are not going to be able to get away with for very much longer.

“Cash costs” will have the same opprobrium attached to it as when you damn an explorer for “nearology”

What PwC has done is impose some rules before we go any further down this track.

Cost reporting needs to highlight not just operating costs, but sunk costs, future capital needs (that will be a doozy), sustaining cost and also reconcile to the financial statements.

This a hook off which the industry will not easily slip.