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How Are Gold Miners Managing Their Geographic Exposure?

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Geographic exposure

Due to rising taxes, royalties, changes to mining codes, and asset nationalizations in the last few years, many big gold projects have been rendered uneconomical. This is why investors and miners have become wary of the geographic exposure to risky mining jurisdictions. The first half of 2016 reiterated gold miners’ focus on attractive mining jurisdictions.

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Focus on attractive mining jurisdictions

While Newmont Mining (NEM) has favorable geographic exposure, its geopolitical risk will decline significantly with its recent Batu Hijau sale. Newmont management said during the conference call that after the deal closes, the company will have ~75% of its reserves in the United States and Australia. These are considered attractive mining jurisdictions. Newmont also acquired the Cripple Creek & Victor Gold Mine in Colorado from AngloGold Ashanti (AU) in 2015.

Goldcorp (GG) also acquired Kaminak in May 2016, whose main asset is located in Yukon, Canada. In terms of mining, Canada ranks as one of the best jurisdictions in the world. Goldcorp’s mines are all in the Americas, and its assets are considered rather safe.

Barrick Gold (ABX) has favorable geographic exposure with ~45% of its production in 2Q16 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 concentrated in the Americas.

Higher geographic risk

Kinross Gold (KGC) also acquired assets in Nevada from Barrick Gold (ABX) at the beginning of 2016. Among the senior gold miners, Kinross has the highest geopolitical risk with significant exposure to Russia (RSX) (RUSL). It has ~28% of its production from Russian mines.

Russia is a risky jurisdiction for mining, given the political uncertainty amid increased tension with the West. Going forward, as the Tasiast mine expansion takes hold and if exploration initiatives at Bald Mountain are successful, Kinross’s proportion of Russian exposure might fall.

While Yamana Gold (AUY) was benefiting from currency tailwinds in the first quarter, currencies such as the Brazilian real, the Chilean peso, and the Canadian dollar have strengthened compared to the company’s budgeted assumptions in 2Q16. This has negatively impacted Yamana’s costs. Brazil and Argentina are not considered ideal mining jurisdictions.

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