Gold Conference held in London -
an impressive event attracting top executives from many of the world's major gold mining companies to present ‘in conversation' with an analyst, particularly familiar with the company concerned asking probing questions - and interspersing this with questions from the audience.
Most of the majors presented in the morning session, while the afternoon was largely devoted to smaller companies making company presentations in the manner more common to the host of investment conferences held around the world.
Opening the conference, Anthony S. Fell, Chairman, RBC Capital Markets commented: "The timing of this conference is excellent; we have a perfect storm which favours investment in gold bullion and gold shares as far as the eye can see. The past few years have been a major long-term positive turning point in the fundamentals for gold, and the current systemic risk in the global financial system is now a very serious and real concern which will also bring renewed focus on gold as a store of value.
"This trend will continue and accelerate as events in this credit supercycle unfold, with this prolonged bull market lasting another decade or more. In this climate, I believe gold bullion is re-emerging as an accepted alterative investment and currency."
First up was Greg Wilkins, President & CEO of Barrick Gold Corporation: "Our recent strategic acquisitions have given us a much bigger global footprint, not only in gold, but also in copper, platinum and nickel. Although the company's focus is gold and will continue to be, this strong portfolio of high quality non-core assets allows us to deliver real value to our shareholders, as we seek ways to monetise our broad range of assets, using those proceeds to re-invest cash back into gold."
Commenting on the gold price he added: "It's hard to say where it will actually go. However, I do believe that the cost structure of the industry has changed so substantially in the past few years, that the sector would be in real trouble if we saw prices go down to $500/oz." He also felt that global gold mine supply was actually decreasing at a faster rate than people believe.
Wilkins also gave some interesting insights into Barrick's views on to where to invest. "There are certain countries Barrick won't go to" he said - "Particularly anywhere which puts anyone in harm's way". That applied to countries like the DRC and some other particularly African nations. And he then went on to comment on security of tenure and potential political interference saying "We are more likely nowadays to be taking countries off the list, rather than adding to it". He cited specifically Venezuela under President Chavez as being a place they wouldn't look at, and also those other Latin American countries, like Ecuador, which were trending in the same direction. Interestingly he saw Russia as a country where he felt the investment climate to be deteriorating which looks like foreshadowing some changes in Barrick policy in the region.
Wilkins was followed by Kevin McArthur of Goldcorp - a company operating and investing almost exclusively in the Americas and focusing entirely on developing new mines with low cash operating costs. He was predicting a 56% growth for the company over the next five years on operations with cash costs of around $175 to $200 an ounce. He felt Goldcorp's outlook was good after some stickier moments earlier in the year. The third quarter results were good and the fourth quarter "looks great"
Again on risk - physical and political - "We won't build a mine where we wouldn't go on holiday" he said. Goldcorp was primarily interested in building new mines in areas in which they were already working and cited plenty of scope for this - noting particularly Penasquito in Mexico and operations in Quebec around the developing Eleonore property, which he reckons is a major new gold sistrict.
McArthur said there had been a definite change of culture at Goldcorp since the merger with Glamis Gold, but overall the transition had gone pretty well. On the gold price, he, like other speakers, was looking to four digit gold in the near future.
Ian Cockerill, CEO of Gold Fields, also concurred on the four digit gold price expectation and confirmed the company's commitment to its international strategy, especially in China, commenting: "We see China as a long-term investment. The country is likely to be the world's largest gold producer this year; however, that production is coming from hundreds of different mines, so the opportunities for consolidation are huge. Furthermore, prospecting in China has hitherto been over large areas at shallow depths, so we are looking forward to working in this region extensively to drive Gold Fields' growth.
"Along with the company's unhedged profile, an increase in production from new projects and large resource base, we are well-placed to see improved earnings growth and cash flow in the future."
Graham Briggs, acting CEO of Harmony, and hoping to be confirmed in that position next month, has the challenging task of turning round a gold major built up on a "mixed bag" of relatively low grade marginal operations. The company has had some well documented recent difficulties and the task now is to turn it around, which is being helped by the high gold price.
Currently the company is addressing cost overruns and is going through a period of high capital spend. High cost uneconomic operations are being phased out and the company was one of the only one's at the event predicting an actual fall in gold output over the next year or two as restructuring takes place.
Evgueni Ivanov, General Director of Polyus Gold, was remarkably open in discussing the difficulties associated with major disagreements between the company's two principal shareholders, Mikhail Prokhorov and Vladimir Potanin. In a separation of their assets it looks now that Prokhorov will head Polyus, leaving Norilsk Nickel, from which Polyus was floated, in the hands of Potanin. "The company's Board is committed to delivering on the promises it has made to the market, and recent shareholder activity will not undermine the development of Polyus." he said.
Polyus is the leading gold producer in Russia and Ivanov discussed the company's growth strategy: "Growing organically rather than by acquisition will be the primary driver over the forthcoming years, as Polyus works to the approved strategy of four times growth by 2015, resulting in 3.9m oz of production annually. Our announcement yesterday updated the market on two major projects in the Krasnoyarsk region, Blagodatnoye, the largest gold discovery in Russia with reserves of 7.2m oz, and Titimukhta. Alongside our other projects and driven by an ambitious exploration programme, we expect our stated reserves of 68.6m oz to grow even further. We are always looking for acquisition opportunities; however, we are seeing few good, value-creating deals out there at the moment."
In particular, Ivanov singled out the Natalka deposit which he reckoned was the world's third largest, as being a major focus for the company. He also felt though, that the company would be looking for western jv partners to help develop the area because of its size. It has not yet been fully explored. He also disagreed with Greg Wilkins view of Russia as a risky mining environment reckoning it to be one of the world's best legislations in which to work - a view at least partly taken by Tye Burt of Kinross later in the day.
One very interesting aside to come from the talk was of a meeting between Russian President, Vladimir Putin, and the heads of the country's gold mining companies who suggested that the Russian Central Bank should consider increasing the gold element of its foreign currency reserves. He suggested that the Russian Central Bank may have been buying gold quite actively in the market and it will be see if this is actually the case when the Bank publishes its next statement.
The final morning presenter was Richard O'Brien, CEO of Newmont, another company which has seen some recent problems materialise with higher operating costs and reduced production at some of its major operations. O'Brien came to the CEO position recently and has already made some strong changes in moving to divest some of what he considers non-core assets and its gold hedges. This includes selling off its big royalty division - in part because a proportion of this related to non-gold assets and will use the money received in gold mining acquisitions where they can find those which meet its investment parameters - Miramar being the first of these.
On Newmont's money sapping Phoenix project, O'Brien thinks the mine planners and developers perhaps got things wrong in trying to push the mine into production too fast. In retrospect he felt that taking a bit more time could have alleviated some of the problems which have since occurred and are only now being addressed.
Overall O'Brien feels that Newmont needs to get back to using its extremely strong mining technical expertise to regain/rejuvenate its position through a more bottom line/cahflow oriented approach and is looking to build shareholder value strongly over the next five years.
The only Tier 1 producer presenting under the "in conversation" format in the afternoon was Kinross Gold, represented by Tye Burt where a takeover of Bema Gold has been successfully implemented over the past year. The company is looking to bring on three new projects with even lower cash costs than the company manages at the moment, and all of these present different kinds of challenges - these are Paracatu in Brazil where production is being tripled and is thus a straight expansion project.
Second is the Russian Kupol high grade gold/silver project - 80 percent complete - which is challenging climatically and geographically being in the icy north, but, as Burt says, probably no more difficult than developing a project in northern Canada or Alaska where similar constraints apply. He feels this is potentially one of the world's best gold mines with cash costs likely to be around $225 an ounce of gold sold.
The third project is the Buckhorn mine in Washington State where problems to be overcome are largely legislative and environmental. This is expected to add 160,000 low cost ounces a year to Kinross' production - also commencing in 2008.
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