Stornoway Diamond Presentation at the Precious Metals Summit Beaver Creek, CO 2014
Growth - Margin versus Volume - Kitco Metals Insider€¦ · Speed dating at the Precious Metal...
Transcript of Growth - Margin versus Volume - Kitco Metals Insider€¦ · Speed dating at the Precious Metal...
EXPLORATIONINSIGHTS–JOEMAZUMDAR
Growth - Margin versus Volume Adjusting for changing themes in the gold industry
Metal Investor Forum, November 2016 - Vancouver
www.explora>oninsights.com
The times they are a changing EXPLORATIO
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“In the hay days, people were pushing for the volume rather than the value piece, just looking for any additional ounce almost no matter what it cost.”
Gary Goldberg, Newmont CEO ● Investor driven emphasis on margin growth versus
production growth ● Cost control, capex reductions, exploration cuts, impairments
and improve balance sheets ● Barrick, Newmont, and Goldcorp have flat production profiles
and sold production ● Barrick is focused on core assets in the Americas (75-80% of
its production profile), which have a B/E gold price of US$1,020
● Hurdle rates of 15% at gold prices of US$1,200 (reserve prices)
Production declines forecast EXPLORATIO
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Source: GFMS and Newmont Mining (Tom Brady presentation at DGG)
Will global mine production peak at ~100 Moz?
Reserves are depleting EXPLORATIO
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Major gold producers including G, NEM, ABX, NCM, AEM, K, AUY, AU, and HMY
Breakdown of Newmont’s EOY 2015 reserves EXPLORATIO
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Source: Newmont
Down 8.5 Moz Acquisition (4.0 Moz) and additions (5.0 Moz) offset a 17.5 Moz drop due to Conga write down, production depletion and gold price change
8.5 Moz
Breakdown of Goldcorp’s EOY 2015 reserves EXPLORATIO
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Source: Goldcorp
Up 1.6 Moz Acquisition (2.2 Moz), positive gold price change (+1.0 Moz) and additions (1.1 Moz) offset a 2.7 Moz drop due to production depletion and gold price change. If not for the acquisition of the Coffee gold project, Goldcorp would not have replaced reserves.
Adding marginal ounces is not a problem EXPLORATIO
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Source: Newmont Mining
+/- US$100/oz = +/- 4 Moz change in reserves +/- US$200/oz = +/- 11 Moz change in reserves
+11 Moz
-11 Moz
-4 Moz
+4 Moz Base
Drop in capital expenditures EXPLORATIO
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Source: SNL, Wood MacKenzie and Newmont Mining (Tom Brady presentation at DGG)
Steeper drop in development capex due to debt levels and hurdle rates
$10 B
$2 B
$6 B
$4 B
Drop in exploration expenditures EXPLORATIO
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Source: SNL, Wood MacKenzie and Newmont Mining (Tom Brady presentation at DGG)
● Low risk brownfield > High risk greenfield exploration
● Goldcorp has cut greenfield exploration ● 80% of NEM’s US$200 M exploration
budget is for brownfields ● We would argue that the only chance
to add quality projects is to find them
$10 B
$4 B
M&A in 2016 is suitor specific EXPLORATIO
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Agnico Eagle’s M&A history – Buy and grow EXPLORATIO
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Source: Agnico Eagle
Purchased - $43 to $186/oz Discovery - $16 to 46/oz
Coffee project – Buy and grow? EXPLORATIO
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Coffee, he says, will grow into a 5 to 10 million ounce gold camp, “Minimum. That's the investment thesis.”
David Garofalo, Goldcorp CEO Global Mining Observer interview
Kaminak currently has a 2P reserve of ~2.1 Moz (US$190/oz)
Source: Goldcorp
Putting geopolitical risk into context* EXPLORATIO
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Source: Agnico Eagle
*Randgold, Goldfields, Anglogold Ashanti would be considered high geopolitical risk companies
Fiscal discipline is recognized EXPLORATIO
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Source: Agnico Eagle
Randgold has been emphasizing hurdle rates and lower reserve prices for years
How has the market adjusted? EXPLORATIO
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● Brokerage firms and banks – analysts, sales, bankers – paying attention again
● Driven by the lack of quality exploration projects - corporate development team focused on junior mining companies
● M&A weighed by fiscal discipline prevents a spending spree
● Junior miners outperform gold price ● More investors interested in exploration plays –
lower financing risk
Speed dating at the Precious Metal Summit EXPLORATIO
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Source: Precious Metals Summit and Exploration Insights
Beaver Creek Precious Metals Summit 60% increase in buy side, 36% increase in corporate [20-23% of total), some juniors with 18 back-to-back meetings in one day
Footprints in junior companies EXPLORATIO
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● Kinross’ M&A strategy ● Quality asset ● Transact-able ● Accretive ● Jurisdiction
● Kinross has JVs in B.C., Yukon and NWT ● Goldfields JV to build Gruyere project in
WA ● Barrick Gold has JV in Guyana ● Goldcorp has JVs with companies near
Coffee project in Yukon ● Anglogold Ashanti has a JV in Argentina ● Yamana has a JV in Chile
$3.8 B worth of financings >$50 M EXPLORATIO
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$445
$138$98
$66 $69
$0
$100
$200
$300
$400
$500
$0
$500
$1,000
$1,500
$2,000 Total ($ M, LHS)
Average ($ M, RHS)
Source: Dundee Securities and Exploration Insights
Cash flowing precious metal companies
~$890 M worth of financings from $10-$50 M EXPLORATIO
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$19
$27$30
$23
$31
$18$15 $15
$14
$0
$10
$20
$30
$40
$50
$0
$100
$200
$300
$400
$500 Total ($ M, LHS)
Average ($ M, RHS)
Source: Dundee Securities and Exploration Insights
Explorers appear
~$370 M worth of financings <$10 M EXPLORATIO
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Source: Dundee Securities and Exploration Insights
Explorers dominate
Junior mining provides leverage (5x) to gold EXPLORATIO
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$1,000
$1,080
$1,160
$1,240
$1,320
$1,400
80
120
160
200
240
280
8-O
ct-1
528
-Oct
-15
17-N
ov-1
57-
Dec
-15
27-D
ec-1
516
-Jan
-16
5-Fe
b-16
25-F
eb-1
616
-Mar
-16
5-Ap
r-16
25-A
pr-1
615
-May
-16
4-Ju
n-16
24-J
un-1
614
-Jul
-16
3-Au
g-16
23-A
ug-1
612
-Sep
-16
2-O
ct-1
622
-Oct
-16
11-N
ov-1
6
Gold price (U
SD per ounce)
GD
XJ
and
EI S
ubs
(Ind
exed
, 100
=O
ct
8, 2
015)
GDXJ
EI subs
Gold
Source: Google Finance, Investing.com and Exploration Insights
Au is up +15% GDXJ is up 80%
Summary EXPLORATIO
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● Profitability over volume ● Reserves are depleting faster than the rate of
replacement ● Production is forecast to decline ● Drop in capex due to balance sheets and more
fiscal discipline ● Drop in exploration with low risk brownfield favored
over greenfield ● Growing interest in junior explorers ● Acquire quality projects not marginal ones ● Grow ounces post acquisition ● District scale land packages ● Mining friendly jurisdictions ● No fatal flaws