Not to pick on just Black Hawk, but let's use it as an example of the issue Ram raised. First, one can go to the first quarter financial report for clues. They are producing about 85,000 this year at El Limon. On page 6 they state they spent $175K on exploration. At a $700K a year pace, that means they need to replace reserves at $8/oz ($700K/85,000 oz). At least they announced some drilling results that are good (see page 5), so maybe they have? I don't know, but it's a fair question for Ram to have brought up about this outfit.
The point I'm making generally (about all producers)is that on average it costs far more than $8 an ounce to find an economic ounce at 268 POG. For instance NDY is considered one of the best explorers among the majors, and they are at $12/oz finding cost. The average that I've seen (anybody have other data?) is close to $20. That's probably low and reflects results from days with more robust prices. My gut from just observing exploration results as closely as I have in the last year, is that it's much higher because of the almost impossible threshold (sub-160 cash cost) that needs to be crossed. Mining execs know that, and it's why they feel it's a waste of capital (and poor odds)to explore for gold. But producing gold above $210 total cost is a waste of capital too.
Here are some production and exploration budgets, and likely replacement based on low range $20/oz finding cost averages (some may get lucky, others may be unlucky) of the companies I've analyzed so far. Like I suggested, actual replacement rates could well be much worse than this.
Sons of Gwalia production 414K exploration $7 million, would need to replace at $6/oz, likely replacement rate based on $20 worldwide average: 30%
NEM: 5.7 million production, $45 million expl., or $8/oz, likely replacement rate 40%
ABX: 3.8 million production, $27 expl., or $7/oz, r.r- 35%
HM: 2.2 million prod., $24 expl., or $11/oz, r.r - 55%
PDG: 2.8 million prod., $32 expl. $11/oz, r.r-55%
AU: 7 1/4 million prod., $46 million expl. or $6/oz, r.r - 30%
CBJ: 613K prod, $1.6 million expl. or $2.50/oz, r.r- 12% |
