Gold’s rebound from the biggest decline in more than three decades is sparking a revival in exploration – and for one Brazilian focused-miner it’s worth the risk of crossing paths with jaguars.
Beadell Resources Ltd. hired armed guards earlier this year to protect its exploration team in the Amazon rainforest in Brazil after they stumbled across the largest of South America’s big cats.
“Shareholders have gone from rewarding companies for doing no exploration, no expansions and cost reductions into rewarding companies for value-accretive exploration,” Beadell’s Managing Director Peter Bowler, said in an interview in Kalgoorlie, Western Australia, at the annual Diggers & Dealers conference. “About 70 percent of our shareholders would prefer us to drill, drill and drill.”
Producers from Gold Fields Ltd. to Northern Star Resources Ltd., who both attended the conference, are boosting exploration budgets that were trimmed as companies sought to cut costs amid gold’s 28 percent tumble last year. The mood mirrors comments last month by Rio Tinto Group Chief Executive Officer Sam Walsh who noted renewed investor appetite for spending.
“At some point you have to recommence spending, and in difficult times you’ve got to understand how to prioritize that spending,” said Roric Smith, vice president of discovery and chief geologist at Sydney-based Evolution Mining Ltd. “If you don’t replace your reserves, you’ve got a go-out-of-business strategy.”
Beadell rose 8.6 percent to 0.505 cents in Sydney trading, while Northern Star rose 5.5 percent.
Armed Guards
Exploration work will accelerate over the next 6 to 12 months, according to MinEx Consulting Pty, whose clients include Newmont Mining Corp., the second-biggest gold company, and AngloGold Ashanti Ltd., the third-biggest.
Beadell has allocated as much as $15 million for exploration in Brazil this year, up from $12 million in 2013, and may add funding, if teams in Brazil and in Australia make discoveries, Bowler said. The Perth-based company’s geologists encountered the jaguar when they were looking for deposits near their Tucano mine in Amapa state.
“That was enough to sharpen their senses,” said Bowler on Aug. 5. “We do see jaguar tracks in the morning around the mine site quite regularly.”
Spending on gold exploration in Australia, the second- biggest producer, fell in the three months to March 31 to A$81.7 million ($76.4 million), the lowest quarterly total since March 2000, according to the country’s Bureau of Statistics.
Constrained Budgets
The exploration budgets of some companies remain constrained. Barrick Gold Corp., the biggest producer, allocated $200 million to $240 million to exploration in 2014, compared to a 2013 budget of $230 million to $250 million, according to its annual report. Newmont also has trimmed spending on exploration, though Chief Executive Officer Gary Goldberg says it remains a critical task.
“You’ve got to be constantly adding to reserves and resources around existing mines, but also out and looking for other things,” Goldberg told reporters today in Melbourne. “It’s the least expensive way to acquire a new asset.”
AngloGold spent $34 million in the three months to March, compared to $92 million in the same period a year earlier, according to a May filing. “The level of exploration that we’ve got now isn’t something that we’d be satisfied with in the long term,” AngloGold Executive Vice President Planning and Technical Graham Ehm said by phone from Perth in a July 31 interview.
Customer Record
Gold investor demand showed signs of rebounding in July with holdings of BullionVault customers rising to a record after gold rallied 10 percent in the first half. Gold, which traded at $1,307.12 at 3:50 p.m. Sydney time, rose 10 percent in the first half and may rise to $1,400 by 2017, Citigroup Inc. said in a July 13 report.
Johannesburg-based Gold Fields has increased its Australian exploration budget to A$55 million from A$25 million last year and will probably raise it again next year, Executive Vice President for Australasia Richard Weston said in an interview. Northern Star, which has more than doubled this year, has allocated A$50 million in 2014, compared to a previous annual budget of about A$10 million.
“Companies have got their businesses back into shape and they are now starting to look to the future and get back out into the field,” said MinEx Managing Director Richard Schodde. “The good news is that the costs of drilling services are cheaper now then they were a year ago, so you can get more bang for your exploration buck.”
Search Costs
The cost of exploration activities including drilling and the testing of samples has reduced by as much as 30 percent in the past year, according to Peter Bradford, Chief Executive Officer of Independence Group NL, which collaborated with AngloGold on the 2005 discovery of the Tropicana project, in Western Australia, which began production in September and may hold as much as 7.7 million ounces of gold.
Independence Group, which has gained 53 percent this year in Sydney trading, may seek to invest in or acquire advanced exploration projects held by smaller companies with dwindling cash reserves, according to Bradford. “People just don’t have the money of their own and need to progress projects, or run the risk of losing tenure, so we are directing more dollars to that,” he said.
