Miners stay close to home in search for deposits
THE world’s biggest gold miners are taking a cautious approach in their hunt for bullion, spending more money exploring around existing mines than in new territory, in a strategy that may have short-term gains but risks future production growth.
Top gold producers are relying more than ever on small companies to do the heavy lifting of searching for new gold deposits and are increasingly taking 10% to 20% equity stakes in the junior miners.
Exploring close to home is more cost efficient and improves the odds of discoveries. But the chances of making major new finds are limited, diminishing global gold output, which is expected to decline nearly 9% in the next three years.
“It only makes sense to be looking in your own backyard first before exploring elsewhere,” said Paul Rollinson, CE of Kinross Gold, which spends about 90% of its exploration budget around existing sites.
“We focus on areas we already know, with existing infrastructure nearby, in jurisdictions we are comfortable with,” he said.
The world’s 10 biggest gold miners are bumping up the share of exploration budgets earmarked for land around existing mines, or brownfield exploration, increasing the spending to 56% in 2015 from 45% in 2013.
They curbed spending on greenfield exploration in new territory to 21% from 25% of their budgets, data from SNL Metals & Mining shows.
“They say the best place to discover a mine is in the shadow of a headframe,” atop mine shafts, said Maria Smirnova, portfolio manager at Sprott Asset Management.
“The rate of failure in exploration is staggering, so it is always better to try and improve what you have already.”
Barrick Gold, the world’s biggest producer by output, looked to near-mine discoveries because plants and equipment were already in place and the deposit was well known, said its president, Kelvin Dushnisky.
Finding affordable and reliable deposits became vital in the past three years as miners
The best place to discover a mine is in the shadow of a headframe. The rate of failure in exploration is staggering.
slashed spending amid a slump in gold prices. Miners have kept a lid on spending in 2016 despite a partial recovery in bullion prices and income.
Exploration spending by the world’s 10 biggest gold miners, such as SA’s AngloGold Ashanti, sank 37% to $1.075bn between 2013 and 2015, the last year for which data is available, SNL Metals & Mining data shows. Newmont Mining, the world’s top gold miner by market valuation, had cut its exploration budget by nearly 40% in 2013 and prioritised areas expected to deliver higher-margin ounces, said CE Gary Goldberg.
“That’s first of all around our existing operations,” he said, adding that Newmont has earmarked about 80% of its $200m budget in 2016 for brownfield exploration.
In the longer term, Newmont was eyeing Ethiopia, Ivory Coast and Queensland, Australia for greenfield exploration, he said.
“Any management team in the industry would consider brownfields expansions first,” before committing to big new projects, given capital was still limited, said David J Christensen, CEO of mining fund ASA Gold & Precious Metals.
Goldcorp CE David Garofalo said little was available to throw that limited capital at. “We are a supply-challenged industry. We’ve had a very poor track record over the last few years of exploration success.”
Global gold mine production peaked in 2015 and is estimated to fall nearly 9% by 2018, to 2,903 tonnes, Thomson Reuters GFMS data shows.
Big gold miners had always relied on small exploration companies for discoveries, acquiring them to access their big finds. But they were increasingly hedging their bets with 10% to 20% equity stakes in juniors, said RBC Capital Markets analyst Sam Crittenden in a report earlier in 2016.
Barrick planned to be more active, partnering with juniors, executive vice-president for exploration and growth Rob Krcmarov said in June.
Mid-tier producer Agnico Eagle Mines, which has bucked the industry trend by boosting its drilling budget over the past five years, plans to continue investing in juniors even as it adds to its drilling budget.
Agnico Eagle Mines last week increased the gold estimate 13% to 3.71-million ounces for its Amaruq project, a new deposit close to its Meadowbank mine in Canada’s Arctic.
“Greenfields is tough. I think the general consensus amongst gold producers is that the real greenfields is best left to the juniors,” said CE Sean Boyd.