Categories: General Market Commentary / Precious Metals
Topics: General Market Commentary / General Precious Metals

World's gold miners stick close to home in hunt for more metal

World's gold miners stick close to home in hunt for more metal

 

By Susan Taylor and Nicole Mordant | TORONTO/DENVER
The world's biggest gold miners are taking a cautious approach in their hunt for bullion, spending more money to explore around existing mines rather than new territory in a strategy that may have short-term gains but risks future production growth.

Top producers are relying more than ever on small companies to do the heavy lifting of searching for new deposits and increasingly taking 10 to 20 percent 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 by nearly 9 percent in the next three years.

"It only makes sense to be looking in your own backyard first before exploring elsewhere," said Paul Rollinson, Chief Executive of Kinross Gold, which spends about 90 percent of its exploration budget around existing sites.

"We focus on areas we already know, with existing infrastructure nearby, in jurisdictions we are comfortable with."

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 percent in 2015 from 45 percent in 2013.

In the meantime, they curbed spending on greenfield exploration in new territory to 21 percent from 25 percent of their budgets, data from SNL Metals & Mining, a unit of S&P Global Market Intelligence, 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."

SCREWS ON SPENDING

Barrick Gold, the world's largest producer by output, looks to near-mine discoveries because plants and equipment are already in place and the deposit is well known, said its president, Kelvin Dushnisky.

Finding affordable and reliable deposits became vital in the last three years as miners slashed spending amid a slump in gold prices. Miners have kept a lid on spending this year despite a partial recovery in bullion prices and income.

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