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Comp: Analyzing Gold Miners’ Reserve Replacement

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Oct. 6 2015, Updated 12:06 p.m. ET

Reserve replacement

Gold miners face the problem of mining gold out of the ground at costs less than the current gold prices (GLD) (IAU). However, they also face the problem of replacing every ounce they take out of the ground. While mines have finite lives, the companies operating them don’t. To stay in the business, miners either have to find new mines to replace depleting mines or acquire mines from junior miners (GDXJ) engaged mainly in exploration. The potential for future reserve replacement and growth is important drivers for gold miners.

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Change in miners’ reserves

Above chart shows gold miners’ reserves for 2013 and 2014. Only Yamana Gold (AUY) reported a rise in reserves due to the acquisition of Osisko.

Among the major gold miners, Kinross Gold’s (KGC) ability to replace its gold reserves is in question. Its production profile gets worse over next three years as reserves fall and some of the mines are closed while others transition into a lower grade.

Goldcorp (GG) should be able to replace its reserves successfully with an extensive pipeline project. Its Eleonore and Cerro Negro mines can offer a short-term upside to production growth.

Newmont Mining (NEM) also has some projects in the pipeline. The most significant is the Turf Vent Shaft project at the Merian mine in Suriname.

While Barrick Gold’s (ABX) production profile isn’t growing near-term due to asset divestments, it has several exploration projects in the pipeline and studies in progress. This could present an upside to the reserves in the long term.

Yamana Gold (AUY) is going through exploration at various mines. At times, this resulted in higher grade asset extensions. There has also been a discovery of a prospective new area at its Fazenda Brasileiro with width and grades above the current mine averages.

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