Gold Miners Look for New Reserves at Home

Gold miners have struggled to remain profitable during the past few years as the falling price of gold depresses revenues while costs continue to rise, squeezing margins to razor-thin levels.

So, as the price of gold continues to slide, miners are looking for reserves that are low-risk, and more importantly, low-cost. To find reserves that meet these criteria, Barrick Gold (NYSE: ABX  )  and smaller peer Newmont Mining (NYSE: NEM  ) have started to look at home; specifically, these miners are exploring developments within Nevada.

Hidden riches
Barrick and Newmont believe that there are still hidden gold deposits within Nevada, a region that already accounts for around two thirds of their production.

What's more, gold deposits with Nevada are low risk -- there are no currency or political headwinds like there are in other regions where these miners are currently active, places such as South Africa and Chile.

Indeed, according to Barrick's CEO, "We know that there's a lot more gold to be found here...Nevada is one of the best places in the world to mine gold."

Further, technical advancements over the past few years are allowing miners to dig deeper than ever before.

Extending life
Newmont has been operating within Nevada for the past five decades, and the company is not planning on leaving anytime soon. The miner is currently in the process of extending the life of its mines, exploring for additional reserves around existing developments. Newmont's management hopes that new discoveries will add an additional 50 years of mine life.

Meanwhile, Barrick is betting on a development within Nevada called Goldrush. The property is a 15.6 million-ounce treasure trove.

Impossible to spot with traditional techniques, Goldrush is a great example of how technological advances are opening up new deposits for miners. Indeed, the Goldrush field has been active for hundreds of years, but until now miners have not dug down further than a hundred feet or so. Barrick is digging much deeper.

Struggling
Still, away from the deserts of Nevada, Newmont is struggling and investors have been pressuring the company to rekindle merger talks with Barrick, which fell apart earlier this year. If the company cannot get itself back to the deal table, investors are asking Newmont to break itself up.

These break-up demands are really divestment demands. Investors want Newmont to sell its Indonesian mine, Batu Hijau, which is proving to be a thorn in the company's side.

The Indonesian government recently introduced a raft of new export bans, taxes, and fees on Newmont Mining's subsidiary. As a result the company has not exported copper concentrate since January, has declared force majeure, and has idled activity at its Batu Hijau mine.

It is believed that the impasse on copper exports will not be solved until late this month -- even then nothing is certain. Relations between Newmont and the government are becoming increasingly frosty.

Away from the Indonesian issue Newmont reported a strong fiscal first quarter with most metrics ahead of guidance. Unfortunately, including Batu Hijau mine these good results are dragged back down to earth.

The bottom line
Barrick and Newmont are looking for low-cost reserves to replace the high-cost, politically unstable reserves they have overseas. This search has led them back home to Nevada, where it would appear that there is still plenty of gold to be found.

Hopefully, over the longer term this should mean lower production costs and more earnings stability for both Newmont and Barrick.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

 


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3030185, ~/Articles/ArticleHandler.aspx, 10/2/2014 7:08:56 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement