ABX will produce 3.8 million in 2001. Uses 300 POG for reserves. Exploration in 2000 was $41 million and has been slashed to $27 million in 2001. Data for this analysis is drawn from a rather remarkable 87 page detailed "analyst brief" put out by the company. The company should hope analysts and thinking investors don't read the fine print.
barrick.com
All readers should understand that although I'm a fervent gold bull, this analysis uses the bear's assumptions: that POG is constrained for some time at near current levels. If so, I believe I show convincingly that current market pricing will collapse supply, and the longer this disequilibrium exists the greater the carnage to production.
The Good:
ABX is going to be around in Tanzania for awhile. Bulyanhulu will have a long life, and reserves (currently 7.5 million) will grow as they employ a district approach. In 2002 Buly will produce 400K @ c.c-130. ABX has plans to expand to 500K within a few years.
Pierna is a short life (5.7 reserve), high output (870K), low cost operation (45-60 c.c) that will deplete in 2007. A modest 8000m program last year turned up nothing. This year a puny 3000m program will try and convert part of the small 586K resource to reserve status. The rest of ABX's scrawny little $5 million expl. budget in Peru is directed elsewhere, including Minaspatas with SWG.
Rodeo is really part of the Meikle operation. The difference is that Rodeo has a life out to 2012 at 350K (production kicks in 2002)@ cc. 135, and Meikle to 2004 with 669K @ c.c 137. Can the lives of these deposits be stretched? Possibly, but it won't be easy. ABX plowed 73,000' into underground drilling and 118,000' of surface drilling just to increase reserves there by 1.1 million, and was only lucky at Rodeo. Apparently their confidence has been shaken, cause the 2001 plan calls for only 39K' drilling underground and 38k' surface. I think Meikle is down and out mid-decade? There is a pretty serious program ($5 million in 01)going on with MDG at Dee-Rossi, but it's hard to see that one as low cost.
The Ugly: Pascua-Lama is just there. They have a 17.4 million reserve. 300K was added after 90,000 meters of drilling in 2000, so additional low cost high grade is problematic. Obviously the merger with HM is a attempt to find a way to make the whole Pascua-Veladero thing work (a tough proposition) at 265 POG. As I will show, ABX is going to hit the production wall late in the decade, and clearly Pascua is marginal. Do they tweak it enough to try and engage in some desperate out year hedging strategy to lock in 300 plus prices (add about 2 1/2% contango a year to spot, six years would equal 300), so that they can "engineer" a pathetic hedge induced double digit IRR? On it's own merits Pascua-Veledero should not be done today.
I'm putting NEM/ABX's huge Betze-Post (the whole complex including Rodeo and Meikle is called Goldstrike, but I treat those deposits more favorably)in with the ugly. ABX's account produces 1,612,000 @ c.c-218. There are supposedly 18.0 (down 2.7 from 1999:325 basis) in reserves left to carry this to the end of the decade. An independent reserve audit was supposed to be done this quarter, but has anybody seen ABX reveal it? 265 POG versus the fictional 300 should ream BP royally. There is allegedly expansion potential, but ABX doesn't fell compelled to look for it as yet: zero exploration this year. The number that stands out in the reserves is the average remaining grade of 0.155 oz. The evidence that BP has been high graded: mill grades in 1999: 0.27 oz and 2000: 0.25 oz, and mine grade of 0.23 and 0.21. This year costs are increasing to 218 as the grade drops to 0.13, and that's close to what's left for the mine life. I'm just not convinced that BP will have smooth sailing for the next decade.
The Bad:
Bousquet 153K @ c.c-220, reserves depleted in 2002.
Holt-McDermott 93K @ 135, reserves depleted in 2004
El Indio 171K @ 186, depleted
Tambo: depleted
About two-thirds of ABX's successful short sale against gold is delivered in the next three years. Then the heroin fix wears off and this outfit goes cold turkey. Unless Rodeo get significantly extended and Pascua- Veladero gets quickly constructed, ABX's production in 2005 will be 3.3 million, 500K lower than 2001. I calculate (gone: Bousquet 153K, Holt 93K, El Indio 171k, Meikle 669K). Add 237K from the 263K to 500K increase at Buly, and 350K from Rodeo.
They will then face the lean years as Pierna (870K) peters out in 07. BP (half of ABX's 2005 output) with it's high cost structure and depletion becomes even more problematic. The point is that ABX doesn't survive sub-300 POG anymore than others. For them it's pay now or pay later. ABX is going to have to scramble either way.
Buying existing HM production for script is not a real solution. I will deal with HM separately. |
