Which Gold Miner Offers a Production Upside in the Long Term?



Long-term production growth

After years of cutting back on sustained capital expenditure, gold miners (GDX) (JNUG) have started to refocus on production growth. Sustained growth is one of the prerequisites for sustainable outperformance over the long term. In this part, we’ll see which miners are investing in future growth.

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Strong project pipeline

Newmont Mining (NEM) has included current projects and sustaining capital projects in its outlook. These projects include the Tanami Expansion, the Subika Underground, and the Ahafo Mill Expansion. Funding for these projects was approved in 1Q17.

In June 2016, Newmont Mining also approved funding for its Northwest Exodus project, which is now under construction. It’s on the back of these projects that the company has improved its medium-term production guidance, as we saw in the previous part of this series.

Goldcorp (GG) has committed $1.0 billion to growth. It expects to see production growth of 20.0% to 3.0 million ounces over the next five years. In Goldcorp’s exploration update released on April 26, 2017, Paul Harbidge, senior vice president of exploration, said that “during the quarter we continued to focus our efforts on reserve replacement and populating the resource triangle with new targets.”

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Upside potential

Barrick Gold’s (ABX) 2017 production implies a YoY (year-over-year) growth of 3.8%. The company’s guidance for 2018 and 2019 is 4.8 million–5.3 million ounces and 4.6 million–5.1 million ounces, respectively. Barrick has maintained that subject to potential divestments, it intends to maintain annual volumes of at least 4.5 million ounces through 2021.

Growth projects

While Kinross Gold’s (KGC) expected production in 2017 will be lower than its actual 2016 production, there are some projects that could provide a significant upside to its volumes. The company has already doubled the gold reserve estimate for Bald Mountain to 2.1 million ounces.

Kinross’s management maintained during its latest earnings call that the Phase-1 expansion of its Tasiast mine is progressing well and that it expects to reach full production in one year. The company is expected to make the decision on Phase 2 by the end of 2017. A favorable decision on this project could go a long way toward rerating Kinross’s stock multiple and narrowing its valuation gap compared to its peers.


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