Which Gold Miner Has Optimal Geographical Exposure?



Importance of geographical exposure

Investors have become very cautious with regards to gold miners’ geographical exposure. There have been many instances of rising taxes and royalties, changes to mining codes, and asset nationalizations that have hampered the operations of several miners in various locations. This is the reason it’s important to understand the geographical exposure of different miners and the potential implications their exposure could have on their prospects.

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High geographical risk

Among the senior gold miners, Kinross Gold (KGC) and Yamana Gold (AUY) have higher exposure to jurisdictions associated with high geopolitical risk. Kinross’s exposure to Russia (RSX) (RUSL) has been one of the major reasons for its discount versus its peers. While the reserves in Russia form 8% of the total reserves, close to 28% of its production is from its mines in Russia. Russia is a risky jurisdiction for mining, given the political uncertainty amid increased tension with the West. In November 2015, Kinross acquired Barrick’s Nevada assets to increase its exposure to the Americas. Going forward, as the Tasiast expansion takes hold and if its exploration initiatives at Bald Mountain are successful, its proportion of Russian exposure might fall.

Yamana is seeing tailwinds in the form of depreciating currencies in its operating jurisdictions such as Brazil (EWZ), Chile, Argentina, Mexico, and Canada. However, Brazil and Argentina are not considered ideal mining jurisdictions.

Exposure to attractive jurisdictions

Barrick Gold (ABX) has favorable geographic exposure with ~45% of its production in 1Q16 coming from North America, ~35% from South America, and the rest from Africa and Asia-Pacific. At the end of December 2015, 88% of its reserves were also concentrated in the Americas. Investors should note that one of its biggest projects, Pascua-Lama, was stalled following an injunction by the Chilean government on environmental grounds. Costs in Africa are higher due to infrastructure requirements, complicated terrain, and political risks.

Newmont Mining (NEM) is also quite diverse in terms of geographic exposure with 32.2% of production for 1Q16 coming from North America, 12.7% from South America, and 40.8% from Asia-Pacific. It has been trying to sell off its non-core assets elsewhere to increase its exposure to the Americas. The company has been contemplating selling its Batu Hijau mine in Indonesia while it bought Cripple Creek and Victor mine from AngloGold Ashanti (AU) in Colorado to get more exposure to favorable mining jurisdictions.

Goldcorp’s (GG) mines are all in the Americas, and its assets are considered relatively safe.


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