After listening to various EXPERTS suggest that Caspiche will end up in the hands of ABX and will be built in conjunction with Cerro Casale, I’ve decided to do a little digging on Barrick for all of us. It’s my belief that the close proximity between Cerro Casale and Caspiche will result in ABX eventually buying us out and trying to find synergistic cost savings in developing both mines at the same time. The purpose of this post is to determine ABX’s current reserves for operating mines and what other mines they have in development.
Operating mines production
North America 2011 production: 3.38M oz Au
South America 2011 production: 1.9M oz Au
Australia 2011 production: 1.9M oz Au
TOTAL 2011 PRODUCTION: 7.18M oz Au
Operating mines reserves (includes Pascua-Lama)
North America reserves: 59.0M oz Au
South America reserves: 52.8M oz Au
Australia Pacific reserves: 15.4M oz Au
TOTAL OPERATING MINE RESERVES: 127.2M oz Au (includes Pascua-Lama)
My thoughts on operating mines reserves: I’ve included Pascua-Lama in the above calculation of 127.2M oz Au however but it is not producing gold at this point. If we discount the Pascua-Lama’s 17.9M oz Au from the 127.2M oz Au in total reserves we have 109.3M oz Au. Depleting at those reserves at 7M oz Au per year means they will have no gold left in ~15 years. If I was ABX, this would concern me considering they are shelving gold projects left, right and center.
South America: Cerro Casale (75% interest): 23.2M oz Au (100% basis), 6B CAPEX (100% basis)
Pakistan: Reko Diq (37.5% interest): no proven and probable resources
Saudia Arabia: Jabal Sayid, copper play, production in 2014
Tanzania: Kabanga, nickel play
USA (Alaska): Donlin Gold Project (50% interest), 38M oz Au (100% basis), 6.7B CAPEX (100% basis)
TOTAL PROVEN AND PROBABLE GOLD RESERVES: 36.4M oz Au with a combined CAPEX of 12.7B
My thoughts on projects and their reserves: First off there is only 2 projects in the pipeline that are gold-related: Cerro Casale & the Donlin Gold Project. Cerro Casale will cost 25% more and Donlin Gold Project will cost 40% more to build then Caspiche. All three mines have comparable amount of gold in the ground discounting copper and silver in all projects. As each year shaves off another 7M+ oz of Au off their reserves, ABX needs to figure out their next step with regards to gold reserves. As the experts and others have highlighted, synergistic savings can be had for ABX if they combine Caspiche and Cerro Casale. Combining projects will give a lower overall CAPEX, and bring almost 40M oz of Au into operational mine reserves.
Donlin Creek Project will require $176 in CAPEX for every Au oz in reserve (6,800,000,000 CAPEX / 38,000,000 oz Au)
Caspiche will require $160 in CAPEX for every Au oz in reserve(1) (4,800,000,000 CAPEX / 30,000,000 oz AuEQ)
Cerro Casale will require $168 in CAPEX for every Au oz in reserve(2) (6,000,000,000 CAPEX / 35,700,000 oz AuEQ)
Thoughts: These three big projects are all in the same ballpark comparing their costs versus AuEQ ounces. If ABX refuses to develop this massive projects. Where is their gold going to come from? They have no other gold projects in their pipeline.
- Converting to 30M oz AuEQ as per Exeter. Gold reserves at 19,300,000 oz Au. Silver converted @ 60:1 ratio for Ag ~700,000 oz AuEQ (41,500,000 / 60), If we add the 19.3M oz Au and the 0.7M oz AuEQ from silver we get 20M oz AuEQ before copper. XRC says they have 30M oz AuEQ. 30M-20M = 10M in copper. 10,000,000 / 4,600,000,000 = 0.002173913 to convert copper to gold
- Cerro Casale has 4,600,000,000 lbs of copper. If we convert it at 0.002173913 we get ~12,500,000 oz of AuEQ. 23,200,000 of gold plus the 12,500,000 of gold EQ totals 35,700,000 oz AuEQ.
Conclusion: ABX and other large miners need to produce at large volumes to remain at the top of the mountain. If they are not willing to spend the money to build these large mines then they will either have to become a base metal company or close the doors. For ABX and others to develop smaller mines with shorter lives doesn’t achieve their goal. Governments are QEing to infinity as predicted by Jim Sinclair and inflation is only going to get worse. In the end I believe if shareholders can hang onto their shares they will be rewarded. Dwindling gold reserves across the board will lead to a shortage in metal and prices will rise, which will eventually lead to these projects being developed.
What Exeter can do: In my opinion acquiring other companies is not a good use of money. They need to force ABX and others hand by continuing to de-risk the project and bring efficiencies up (higher recovery rates, etc.), which they are doing. The hydro lines coming in from Kinross’ project was also a good development. The company should begin shopping themselves to the Chinese. In the meanwhile, Exeter’s goal should be to bring the oxide portion into operation. This will unlock value, generate cash-flow, and with a higher share price it will attract more buyers and/or give them more options while protecting themselves from predatory bids (see Andina). In the end, I am long XRC and see a bright future for this company.