The Role of the Investor in Financing Exploration PAUL BURTON MD GFMS WORLD GOLD FINEX LONDON SEPT...
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The Role of the Investor in Financing Exploration PAUL BURTON MD GFMS WORLD GOLD FINEX LONDON SEPT 23 2008
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Transcript of The Role of the Investor in Financing Exploration PAUL BURTON MD GFMS WORLD GOLD FINEX LONDON SEPT...
The Role of the Investor in Financing Exploration
PAUL BURTONMD GFMS WORLD GOLD
FINEXLONDONSEPT 23 2008
EXPLORATION
6D MODEL OF MINING
DETECTION
DISCOVERY
DEFINITION
DESIGN
DEVELOPMENT
DEPLETING
High Risk
Lower Risk
US$ millions
NEWMONTNORMANDY NEWMONTNORMANDY
EXPLORATION CUTBACKS
PRE
$111
POST
$73
Source: Barrick Gold
US$ millions
BARRICKHOMESTAKEBARRICKHOMESTAKE
POST
$104
EXPLORATION CUTBACKS
PRE
$149
Source: Barrick Gold
EXPLORATION SPENDING
0
50
100
150
200
250
2002 2003 2004 2005 2006 2007 2008
US
$ M
0
100
200
300
400
500
600
700
800
900
1000
US
$/o
z ABX
NEM
Au
Source: GFMS World Gold
EXPLORATION SPENDING
0
2
4
6
8
10
12
95 96 97 98 99 0 1 2 3 4 5 6 7
US
$ B
0
100
200
300
400
500
600
700
800
900
1000
US
$/o
z
Source: MEG
Production V Exploration
2350
2400
2450
2500
2550
2600
2650
2700
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
To
nn
es
0
2
4
6
8
10
12
US
$ B
Source: GFMS, MEG
• “Companies at all levels of the industry have substantially increased their budgets over the past five years, but the junior sector is clearly driving the current exploration upswing. Junior exploration spending has increased a remarkable 909% since the bottom of the cycle in 2002, accounting for more than half of the overall year-on-year increase in each of the last four years, and for more than half of the 2006 and 2007worldwide total”.
Source:MEG
EXPLORER - DEFINITION
• Entrepreneurial• Professional geologists• TSXV, AIM, ASX• Intellectual capital• Ability to burn cash• Performance on results
not gold price
What does a Junior Explorer do?
DETECTION
DISCOVERY
De facto exploration arms of majors
8
7
6
5
4
3
2
1
0
$109
DISCOVERY DEFINITION AND DEVELOPMENT
DEPLETION
SH
AR
E P
RIC
E
HIGHER RISK LOWER RISK
Life Cycle of a Mining Share
Source: US Global Funds/Tocqueville
US$5/oz US$40-70/oz
US$140/oz
JUNIOR EXPLORER
Source: Stockwatch
• “The juniors’ dependence on equity financing to fund exploration makes them the most volatile sector of the industry, suffering the steepest declines in exploration during bad times and enjoying meteoric increases during the booms.”
Source: MEG
RISK MATRIX
EXPLORER
MAJOR
High
Low
RiskPropensity
Low HighEquity Risk
3 YR COMPARISON
300
400
500
600
700
800
900
1000
Q105
Q106
Q107
Q108
Gold
ABX
NEM
Source: Barry Cooper, CIBC World Markets
2006 EQUITY PERFORMANCE
-50
0
50
100
150
200
250
300
%
Gold Majors Int Junior Expl
Source: GFMS World Gold
0
20000
40000
60000
80000
100000
120000
Fin Assets Gold Gold Equities
MARKET SIZE (US$ Billion)
Source: Tocqueville Asset Management
QUESTIONS?
WWW.GFMSWORLDGOLD.COM
