Gold miners face the problem of compensating for every ounce of gold they take out of the ground. While mines have finite lives, companies operating them don’t. To stay in business, miners have to find new mines to replace depleting mines or acquire mines from junior miners (GDXJ) engaged mainly in exploration. Therefore, it’s important to look at miners’ estimates for reserves and resources and the assumptions used to calculate these.
Decline in reserves and grades
Yamana Gold (AUY) reported a massive 19% decline in reserves in 2015 to 15.9 million ounces as compared to 2014. The decrease in reserves was primarily due to reclassification at Pilar and C1 Santa Luz. The grades also declined from 0.78 grams per ton in 2014 to 0.63 grams per ton in 2015. This is despite the company using a 4.5% higher gold price of $1,150 per ounce for 2015.
Yamana Gold moved 1.2 million ounces from reserves to resources at Santa Luz. In addition, mine model revisions at the Mercedes and Pilar mines also led to reserves moving back to resources. The company expects the resources from Santa Luz to be converted back to reserves in 2016 after the completion of a pre-feasibility study.
The company’s silver reserves fell 11% due to El Peñón depletion. The silver price (SLV) expectation was unchanged at $18 per ounce. On the other hand, copper reserves increased by 4% on a 9% addition at Chapada. The copper price expectation was also unchanged at $3.00 per pound.
Lower grades for Yamana Gold
Yamana Gold’s grades are quite low as compared to those of many of its peers. This is probably one of the reasons for its higher operating costs. Newmont Mining Corporation’s gold reserve grades were 1.1 grams per ton for 2015, while Barrick Gold Corporation’s (ABX) grades were higher at ~ 1.9 grams per ton for 70% of its mines.
The decline in reserves is not unique to Yamana Gold, though the magnitude for peers is lower. Agnico Eagle Mines (AEM) reported a 1.1% year-over-year decline in reserves in 2015. Kinross Gold Corporation’s (KGC) reserve decline was marginal at 0.4% due to acquisitions during the year.