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Can Intermediate Gold Miners Offer a Long-Term Production Upside?

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Reserve replacement and beyond

The potential for future reserve replacement and growth is an important driver for gold miners. 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.

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Long-term upside in production growth

New Gold (NGD) offers a strong production growth potential. In November 2015, it released the exploration results for its Peak mine in Australia. The results are promising as two new zones of mineralization were discovered. One of its other projects, Rainy River, is also set to start producing in late 2017, and will add 325,000 ounces per year according to the company’s estimate. To provide a context, NGD’s 2015 production estimate is 410,000 gold ounces.

Eldorado Gold (EGO) also offers significant production growth potential. Its development projects like Stratoni in Greece, Magura in Romania, and White Mountain in China continue to show good results as far as exploration upside is concerned. It’s one of the few gold stocks with a strong production growth outlook with long-life and low-cost assets. If history is any guide, the company has doubled its production in the last five years.

Limited growth options

Growth options for AngloGold Ashanti (AU) seem limited going forward. Earlier, Randgold Resources (GOLD) was supposed to develop the Obuasi mine with AngloGold in the joint venture, but on December 21, 2015, Randgold terminated the investment agreement as it didn’t meet its IRR (internal rate of return) requirements. As other mines in Anglo’s portfolio mature, Obuasi development was necessary to maintain its production profile, and that could now fall in the medium term.

Gold Fields (GFI) has invested in brownfield exploration in Australia and is looking for valuable acquisitions.

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