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May 19, 2010 Dear Friend,
In 2009 and in 2008 the 8
major publicly traded gold mines accounting for about 33 mm
oz or half of world gold mine output collectively enjoyed
1.1% proven and probable reserve gains in each year.
However, the three mostly "overseas" companies FCX,
AngloGold Ashanti and Goldfields Ltd. each suffered two year
reserve gains. In 2009 their collective "nonreserve
resources," or "works-in-progress," rose about 3.6%, which
is a slightly better lead indicator.
We estimate the 8
companies will collectively enjoy 5% reserve gains in 2010
led by gains at Agnico-Eagle, Goldcorp and Barrick Gold. We
expect the other 5 companies collectively to be unchanged in
their collective reserves. We expect the reserve gains to
stem from combinations of (1) ongoing exploration programs
in process as signified by the 3.6% 2009 nonreserve resource
gains, (2) acquisitions by GG, AEM, ABX and KRG, (3) higher
gold prices and (4) the conclusion of multi-year evaluations
of acquisitions done several years ago such as Newmont's
Hope Bay and Goldcorp's Eleonore deposits.
The past five years have
been a sort of "golden era" for gold exploration, and we
view the "skinny" reserve gains as an illustration of how
difficult it is to find gold. Record exploration outlays,
record gold prices, favorable copper and other coproduct
prices, moderate energy inputs whose prices rose less
rapidly, record acquisition capital outlays and improved
geoscience all contribute to the reserve gains. We fear
that reserves will not be replaced, or decline, if gold and
various coproduct metals prices were to fall.
We "graded" the reserve
growth, and ranked Agnico-Eagle as #1, Barrick Gold as #2
and Goldcorp as #3 in growing reserves. We ranked FCX #6,
AngloGold #7 and Goldfields Ltd. as #8, which experienced
declines, and Newmont #4 and Kinross #5. We rate GG, AEM,
Greystar Resources and FCX each Overweight, Barrick Gold
Neutral, AngloGold and Newmont Mining Underweight and do not
cover Kinross and Goldfields Ltd. on a regular basis.
TRAVEL
Michael Foley on our team
attended the Thompson Creek Metals mine tour today. I will
attend the Goldcorp investor day and also visit Barrick
Gold tomorrow in Toronto, Allegheny Technologies on May
25-26 in the Carolinas, and Newmont Mining in Boston on May
27 and will visit clients in Boston on May 27-28.
We will have a morning
call at 7:45 am next Monday May 24th, reviewing the data
reports of the WBMS, Int Aluminum Institute, World Steel
Assn., Fibre Box Assn. and probably the World Gold Council
as well. We will not have a morning call on Thursday May 20
or 27 owing to our travel.
Faithfully,
John C. Tumazos, CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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