I have a couple points to make about reserves.
1. POG is the key variable. Most producers are still using 300 and in some cases more as their basis of calculation. A few weeks ago when we were near 250, I would have to think a substantial percentage would be downgraded to uneconomical. At 270, it's not that much better.
2. The where and how question. How much of the reserves is listed from deposits that will require enormous capital expenditures, versus in place facilities? Some of these (such as Las Cristinas have been written off), but others have not (for instance one of my favorites specs, GLDR's Brisas, or AZS's Aldebaran). Capital is so constrained and lacking at this price, that the viability of these projects as real reserves has to be questioned. It takes money to make money, and this industry has little. Even a robust project such as Pascua is on hold (and in the meanwhile ABX has sold that production into the paper market, but that's another issue). The gold is there for sure but they need a much better environment for it to be actually produced. Even existing mines need reinvestment, and we see instances (McWatters) where they can't do it. Are those true reserves then? Much of the SA reserves calc is pipe dream and fantasy gold.
3. Replacement of production? Highly questionable. ABX only spent 41 million on exploration last year . Even the best junior explorers have very constrained budgets. For instance, Birim has completely stopped activity as they await a "check is in the mail" royalty payment from ASL. There are only a handful of robust new projects scheduled to open this year, and no new ones (unless I've missed it) slated to start development.
I know where Hamilton got the five year figure (John Hathaway). IMO if you really started picking apart lead times, capital issues, location and sovereign issues, economics (at 275, which is your own assumption)and reserve depletion, the five year number is more accurate than the nine or twelve. I would say there is five years of true reserves, and another five years of highly questionable *"quasi-reserves". Then there may be five more in the resource category that will require an enormous exploration and development cycle (five to ten year lead time, and it will probably take two or three just to get the cobwebs out and find trained personnel) and much higher sustained prices.
* quasi: defined in Web as "resembling, or having some of, but not all of the features of". A great definition of the gold mining industry. |
