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We carefully modelled Barrick Gold, which
increased reserves 0.9% in 2009 and for which we estimate a 4%-5% gain in
2010. The buyout of parnter Teck's 50% share of the Hemlo mines added about
half of the 2009 reserve gain. The buyout of partner Kinross's further 25%
stake in Cerro Casale in Chile is estimated to add 5.8 of the 6.4 mm oz
2010 reserve gain we estimate. The "upside" involves the possible
completion of the Reko Diq feasibility study for Pakistan, and whether
Barrick and Antofagasta move ahead. We reduced the capitalization rate we
apply to ABX and maintained a $35 price target owing to the low value
African Barrick IPO, the timetable for Donlin Creek in Alaska drawing out
towards 2018, the lean grades at Cerro Casale and risks in Pakistan.
We made a detailed discussion of PolyMet
and Duluth Metals, whose timetables may be slowed or extended. Many
companies in various state jurisdictions, including Alaska, WV or Nevada,
rely on sympathetic state regulatory agencies for their projects.
The Minnesota Dept. of Natural Resources oversees the PolyMet draft EIS, and
some frictions have blown up between the MN DNR and the U.S. EPA. In fact,
there could be upwards to ten points of federal jurisdiction, although we do
not believe that either PolyMet nor Duluth's projects have any unusual or
fatal flaw nor necessarily made "enemies" at the federal level. We believe
those companies have confined their communications to the MN DNR.
The Obama Fed may be more intrusive than
prior governments, as evidenced by the March 26th withdrawal of a permit for
mountaintop coal mining in WV granted three years earlier to Arch Coal. We
believe many companies' investor communications programs, specifically
timetables, have not adjusted to new realities. At a minimum, various
federal agencies will be actively involved rather than passively default
oversight to individual state DNRs.
The Coeur d'Alene Mines Kensington
project in Alaska involved 20 and the FCX Safford, AZ and Quadra Mining
Carlota, AZ heap leach copper mines each took 17 years to permit and start
up. Each company slowed down in weak metals price climates, but took over a
decade including judicial challenges. The judicial challenges to Teck's Red
Dog extension in Alaska and Barrick's Cortez Hills gold mine in Alaska show
that environmental groups are not backing off even with 10% unemployment.
Emerging mines shares possess political
risk, whether located in the U.S. or overseas.
John C. Tumazos
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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