Due to rising taxes, royalties, changes to mining codes, and the nationalization of assets 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. This year has reiterated gold miners’ focus on attractive mining jurisdictions.
Focus on attractive mining jurisdictions
While Newmont Mining (NEM) has favorable geographic exposure, its geopolitical risk could decline significantly with its recent Batu Hijau sale. After the deal closes, the company should have ~75% of its reserves in the US and Australia, which are considered attractive mining jurisdictions. Newmont Mining also acquired the Cripple Creek & Victor Gold Mine in Colorado from AngloGold Ashanti (AU) in 2015.
In May 2016, Goldcorp (GG) acquired Kaminak, 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 ~47% of its production in 3Q16 coming from North America, ~33% 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) 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). About 28% of its production comes from Russian mines.
Russia is a risky jurisdiction for mining, given the political uncertainty amid increased tension with the West. As the Tasiast mine expansion takes hold and if exploration initiatives at Bald Mountain are successful, Kinross Gold’s proportion of Russian exposure could fall.
While Yamana Gold (AUY) was benefiting from currency tailwinds in the first quarter of 2016, currencies such as the Brazilian real, the Chilean peso, and the Canadian dollar have strengthened compared to the company’s budgeted assumptions in 2Q16 and 3Q16. This has negatively impacted Yamana’s costs. Plus, Brazil and Argentina are not considered ideal mining jurisdictions.