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Gold/Mining/Energy : Gold and Silver Mining Stocks -- Ignore unavailable to you. Want to Upgrade?

To: goldsheet who wrote (3860)	8/12/2003 9:03:24 PM
From: Jamey	Read Replies (1) \| Respond to of 4051

Bob, have you heard any information about Bema Gold (BGO) and their supposed big gold find in Russia? I understand that some drilling reports may be forthcoming to verify that find. James

To: goldsheet who wrote (3860)	8/22/2003 9:05:27 PM
From: Ironyman	Respond to of 4051

Bob...What you said about getting it into production is the most important thing these days. All I see is drill results and a bunch of idiots jumping on board. Mine development costs are out of control these days and permits are for the most part impossible to get even in the most backward countries. The fact is that from drill results to time of production I see SIX YEARS passing by and another two before there is profit. Regards,Eric

To: goldsheet who wrote (3860)	9/17/2003 6:32:25 PM
From: russwinter	Respond to of 4051

Revisiting a prior subject; tooth fairies. >Large gold producer treadmill unsustainable - expert By: Tim Wood Posted: 2003/09/16 Tue 23:00 EDT \| © Mineweb 1997-2003 NEW YORK – The Canadian Journal of Exploration & Mining Geology recently carried an article warning that very large gold producers are unlikely to overcome the statistical odds stacked against them. Ralph Bullis says the concept of ever larger gold mining companies is flawed since they cannot acquire or discover gold deposits of sufficient size to maintain their reserve profiles. Bullis defines Very Large Gold Producers (VLGPs) as companies whose primary revenues come from gold output of 5 million or more ounces a year. That currently means Newmont, AngloGold and Barrick; with Placer Dome, Gold Fields and Harmony hoping to imminently break into the league. Whilst companies have successfully scaled up production through deal making, it has come at a cost of reserve life leakage. Newmont’s production rose four times in the decade to end 2002, but its reserve life was cut nearly in half. Barrick raised annual production five times and has also seen life of mine reserves slip, although not as badly. AngloGold is not strictly comparable because of its mid-90s reorganisation, but has also raised production only to see reserve life deteriorate especially as the strong rand sterilizes once attractive deposits. The primary rationale for creating VLGPs is straightforward – many head office and field functions can be consolidated; large companies extract better prices from suppliers; and institutional investor interest is triggered by market capitalization criteria. Bullis also notes that much M&A action is analyst and banker prompted. Cynically, that’s because it earns money for them, but it is also a natural investor desire for growth. If you’re not growing key metrics, it’s hard to attract and retain investor attention, which makes printing your own currency (shares) impossible. It is a multi-directional treadmill not always dictated by rational behaviour. Bullis writes: ”The size of annual production of the VLGPs, coupled with short mine life of the proven and probable reserves, presents a significant issue for those companies. Presumably, the VLGPs will have corporate exploration objectives that will include some or all of the following: finding or buying deposits that will add significantly to reserve life; ensuring that the the discovered or acquired ounces will be ‘low cost production ounces (i.e. be in the lower tier of production cost per ounce); and, also ensuring that targeted deposits will have an acceptable cost per ounce to find or acquire (i.e., having an acquisition or discovery cost below $20-30/oz of gold as either a resource or a reserve in the ground). Corporate guidelines will undoubtedly also include a minimum size of deposit as a target.” Put another way, the “synergies” of consolidation are in many ways offset by exploration challenges. A company consuming 5 million ounces of gold a year soon struggles to defend any interest in a remote one million ounce deposit which would amount to a mere two and half months of production. Indeed, Pierre Lassonde, Newmont’s president alluded to this recently when he told the Diggers & Dealers event in Kalgoorlie that any move to consolidate the various stakes in Boddington would amount to nothing more than a “rounding error” in the Denver company’s production. The VLGP hurdle rate is now so extreme high that it is statistically anomalous. In the past eleven years, only ten deposits have been found containing over 5 million ounces of gold. Only four of those exceed 10 million ounces, three of which are already in production. Based on the 1991-2002 exploration record, which reflects both boom and bust cycles, the VLGPs are unlikely to find enough gold on a year-to-year basis to satisfy their production appetites. “If the success rate going forward is equal to that of the past ten years, it appears unlikely the group of existing VLGPs will be able to sustain collective annual production over the medium to longer term by making new exploration discoveries,” Bullis opines. Similarly, the very nature of gold deposits is daunting for the VLGPs. 68% of total deposits contain 1 million ounces or less. Only 6% of all lode gold deposits exceed 5 million ounces in size. That number rises sharply to 39% of world porphyry copper-gold deposits, but current gold producer fashions dictate against a polymetallic profile. “It should be apparent that the disposition of gold deposits in nature, based on size, is highly disproportionate and does not favour the large deposits that the VLGPs need to replace annual production, Bullis says. “The exploration staffs of the VLGPs are therefore faced with a daunting task – find gold deposits that are numerically very few in number, in areas that have been already well explored and within time frames that allow their companies to maintain steady extraction of 8-10 million ounces annually.” To do so the explorers must be well funded, with up to $15 per ounce taken into reserve. Then they are faced with lengthening permitting periods, especially in the United States and Canada. Bullis concludes: “The drive for increasing size in annual production has produced very large gold producers that are unlikely to survive at current production rates over the mid to long-term (5-10 yrs). “Optimum annual production size and rates of discovery of new reserves needed to sustain gold mining companies can be debated. However, the size distribution of gold deposits in nature and ability of companies to make new discoveries and successfully bring them to production will ultimately determine the companies, and their size, which will survive over the long term.” Bullis is clearly right, but there is no evidence yet that the consolidation rush is over. It remains true that the industry is highly fragmented when compared with other metals. However, there is also something more distinguishing about gold companies – they have focused on production rather than the whole value chain. Consolidating production is useful for widget factories that can be staffed and driven according to market cycles. It is far less useful for mining where deposits are often in outrageous places. The next round of real value addition in the gold business should come from vertical integration that mimics copper and aluminium. The VLGPs should be looking to acquire precious metal refineries, wholesalers, distributors, mints and automated jewellery plants for starters. At least that will give them a foot in the price setting door and encourage discipline to manage supplies better