Thursday, 16 January 2014

FT - Gold Mining - Squandered Opportunity

Interesting timing for the FT to take an interest in Gold Miners as they make a strong start to 2014.
Plenty of truth in the errors made.

Interestingly 4Q-13 results have been giving some positive cost reductions and with Goldcorp's bid for Osisko might we see a stronger industry and market emerge?
Now, mishandled investments and bloated projects have taken the shine off gold miners, which in recent years have generally underperformed the metal itself. .....Further disappointments await. Some of the world’s largest gold miners are expected soon to announce cuts to the reserves they calculate are in the ground, acknowledging that millions of ounces of ore are no longer economic to mine as the gold price has tumbled............ “Many gold companies have been growing for the sake of growth, often financed with share issues – and that has ultimately watered down returns for investors. 
As gold miners have grown, they have had to run ever faster and harder to replace the ore they have dug out of the ground each year – with limited success. According to SNL, a data provider, some 800m oz was added to global gold reserves and resources in the decade and a half up to 2012 – but 1.2bn oz was mined during that period.Nor has the quality of reserves been maintained. Mark Bristow, chief executive of Randgold Resources, says the grade of reserves has gone from 2.6g per tonne in 2000 to about 1.1g/tonne, meaning mining will be costlier.
“The silver lining is that companies will have much cleaner balance sheets going forward. Now they need to change their model, reduce their size and improve their management and boards,” says Mr Beristain. “I am still not sure all companies have grasped this – or whether those that have are really believing it wholeheartedly.” 
For big gold producers, a healthy junior sector raises the chances of gaining access to a significant project. “The more lines you have in the water, the more chance you have of catching a fish . . . no major gold miner can replace everything through exploration and you have to buy some production in, so we need juniors,” says Paul Rollinson, chief executive of Kinross Gold, one of the world’s largest producers.
“If you have had some success people will give you the ‘what if’ money,” says Mr Wagner. He suggests that companies such as his, exploring in Canada, will be favoured over those in more exotic locations.“When times are good people are non-selective. When times are bad they need comfort food,” he says. “They come back to what they know – Canada, Nevada, Mexico.”.....“Post Bre-X was worse but this is a close second,” Mr Wagner says. “Gold explorers and producers are getting viewed with suspicion, rather than outright disgust.”

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