Gold crowd says it's 'growth' crowd
Miners accelerate efforts to boost production, reserves
>>Speaking at the annual Mining Investment Forum in Denver, gold executives this week gave anecdotal and numerical evidence of trends the industry is hoping, nay praying, will reverse a multi-year decline. Those trends include drops of 2 percent and more in yearly global output of gold as miners in coming years merge or "mothball" properties that can't turn a profit at gold's current price of $322 an ounce.<<
Thom Calandra
CBS.MarketWatch
11:35 AM ET Oct 3, 2002
DENVER (CBS.MW) -- The world's gold miners are confident their industry will become the next great growth industry of the world's battered stock markets.
Gold companies are seeking prime properties in faraway places in an effort to boost operating cash flows and poise themselves for another leg up in a year-long rally for gold prices. "If you don't have land you're nothing but a rag picker," says Jeff Huspeni, a vice president of mineral district exploration for the world's largest gold miner, Newmont Mining (NEM).
Huspeni has been with Newmont for 21 years, and he says he's never been busier. Newmont has 118 test-drills stretched around the globe -- in South America, western Africa, North America and Australia. The company is gingerly exploring promising veins of ore in Turkey, where after years of indifference and high unemployment levels, village leaders are inviting Newmont executives to their ritual tea gatherings.
The Denver-based Newmont's proven and probable reserves at year-end 2001 were 87 million ounces of gold -- an amount that includes reserve estimates from Newmont's two new merger partners, Normandy of Australia and Franco-Nevada of Canada.
Newmont, and other, smaller companies, are convinced their exploration efforts will serve shareholders well, in the event gold prices surpass a stubborn $330 an ounce. Newmont will spend as much as $85 million on exploration next year. That's a 16 percent rise from this year's beating around the globe in search of new ore bodies.
Speaking at the annual Mining Investment Forum in Denver, gold executives this week gave anecdotal and numerical evidence of trends the industry is hoping, nay praying, will reverse a multi-year decline. Those trends include drops of 2 percent and more in yearly global output of gold as miners in coming years merge or "mothball" properties that can't turn a profit at gold's current price of $322 an ounce.
Anglogold (AU) of South Africa, for one, reported its cash operating margin of $140 -- essentially the difference between all the money it spends to produce an ounce of gold and what it ultimately receives -- is its highest ever. The company's chief executive, Bobby Godsell, pleasantly surprised shareholders when he said the 6-million-ounce producer could see South Africa reserves increase by almost a third when estimates are revised by year's end.
"Anglogold may turn out to be one of the surest sources of profits and dividends for shareholders in coming years," says James Turk, a longtime gold advocate and founder of electronic payment system GoldMoney.com.
Anglogold's neighbor, Gold Fields (GFI), is spreading its wings as it plants mining flags in western Africa, Australia, Finland and elsewhere. "We have a commitment to become much more active in wider areas of the globe," says Ian Cockerill, Gold Fields chief executive. The New York Stock Exchange-traded company, currently in shelf registration to raise money, produces about 4.5 million ounces of gold a year and is exploring for platinum in Finland.
The hopeful exploration plans for gold miners come at a time when many on Wall Street fear fiscal turmoil and a further collapse of the U.S. dollar. Stock markets everywhere are ailing. Gold mining executives, meanwhile, say they are taking steps to avoid the legal and regulatory woes of their counterparts at major American corporations.
"We simplified our corporate structure and have been respectful of the minority shareholders way before the Enrons of the world," said chief executive Roque Benavides of Peru's largest precious metals producer, Buenaventura (BVN). Buenaventura has a 43 percent interest in Yanacocha, South America's largest gold mine. Newmont owns 51 percent of the Yanacocha property.
Small and midsized gold miners are in the growth race, as well. Kinross Gold (KGC), a producer of almost 1 million yearly ounces of gold, intends to merge later this year with Echo Bay Mines and TVX Gold (TVX). Kinross Chief Executive Robert Buchan hopes the combination will double the new company's gold output.
"I can take three Chevrolets and make a Cadillac out of it," Buchan told fund managers about the looming merger. The new Kinross, banking on a leap in its operating cash flows, will win big if the gold price moves $25 higher, the executive said. Newmont will own about 14 percent of Kinross once the merger is completed.
Gold miners say they are confident their companies will remain at the top of the stock-market gainers lists, where they have been for much of the past 18 months.
"The gold is out there, it is in sight and it's achievable," said Huspeni, the Newmont exploration executive.
Thom Calandra
321gold.com |
