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GOLD MINERS ROUNDUP
Gold Miners Invest in Operations as Profit Margins Grow
By Steve Fiscor, Editor-in-Chief Barrick Gold's Lagunas Norte mine in Peru is a low-cost gold operation.
For the 10th consecutive year, gold prices have increased. Global economic uncer- tainty throughout much of 2011 allowed miners to continue to capitalize on a bull run that began in 2001. The mining indus- try's unhedged exposure to rising gold prices has improved profits margins and cash flow. Demand for bullion remains strong, especially from large emerging mar- kets like China and India. Central banks and investors alike seek to diversify portfo- lios with gold.
The second half of 2011 was a wild ride for gold prices. A third quarter rally pushed the price of gold to a record of $1,921/oz. Gold ended 2011 at $1,563/oz, up 10% with an average price of $1,590/oz for the year. The possibility of an American default as politicians debated an increase in the U.S. debt ceiling, prompted a downgrade of U.S. debt, which took gold prices higher. Gold prices fell by 15% after politicians reached a temporary fix. Soon afterward, Eurozone financial concerns emerged, gold prices fell further as investors fled from commodities in a massive sell-off. Gold quickly regained its upward momentum as 2012 began.
28 E&MJ; • FEBRUARY 2012 Despite problems in both Indonesia and
Peru, it's believed that gold miners will pro- duce approximately 2,800 metric tons (mt) of gold in 2011, or about 100 million oz, an increase of around 4% over 2010. In general, mines are going deeper and ore grades are declining, which means miners must extract and process more ore. On top of these conditions, discovery rates are also declining. Gold miners are investing heavily in exploration programs, and in increasing capacity and optimizing existing operations.
Barrick Discovers More Nevada Gold
Barrick Gold will produce 7.6-7.8 million oz of gold in 2011 at a total cash cost of $460-$475/oz. The leading gold producer recently announced two significant gold discoveries on the Cortez property in Nevada, Red Hill and Goldrush. The devel- opment of the Pueblo Viejo and Pascua- Lama mines continues to advance with first production anticipated in mid-2012 and mid-2013, respectively. The two mines should average 1.4-1.5 million oz/y in gold production during the first five years of operation at a relatively low cash cost.
"We remain on track to achieve our tar- gets, one of which is to have one of the low- est cash cost profiles among the senior gold producers," said Aaron Regent, president and CEO, Barrick Gold. Recent drilling con- tinues to expand the mineralization at the two discoveries in Nevada, Regent ex- plained. Infill drilling between the two de- posits is advancing the possibility that they will merge into a single deposit. Barrick's North America region contin- ued to perform well during 2011. It is expected to produce 3.3-3.4 million oz in 2011, at $425-$450/oz. The Cortez Hills open-pit mine was in a higher waste strip- ping phase and is now entering a higher grade area. The Goldstrike operation tran- sitioned to a higher stripping phase in the second half of 2011. The company's South American busi- ness unit performed ahead of plan, produc- ing 1.85-1.90 million oz at a cash cost of $360-$380/oz. As a result of mine sequencing, Lagunas Norte's production exceeded plan. Veladero also met the com- pany's production and cost guidance ranges. In the South Pacific, the Porgera mine was impacted by lower underground production, primarily due to equipment availability issues and unplanned maintenance. During 2011 exploration, Barrick in- vested $370-$390 million in exploration with most of the activity weighted toward resource additions and reserve conversion at and around mine sites mostly in Nevada. At the Pueblo Viejo project in the Dominican Republic, first production is anticipated in mid-2012. Barrick's share of annual gold production in the first full five years of operation is expected to average 625,000-675,000 oz at total cash costs of $275-$300/oz. Total mine construction capital is estimated at $3.6-$3.8 billion. Project construction is more than 85% complete following a delay caused by dam- age to the partially constructed starter tail- ings dam facility due to a heavy rainfall event in May 2011. Remediation of the starter tailings dam continues to progress. The mine has received all of the necessary
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