Gold miners (GDX)(SGDM) have faced ongoing concerns. They face the problem of compensating for every ounce they take out of the ground. So it’s important to look at miners’ reserves and resource estimates and the assumptions used to calculate them.
At the end of 2017, Barrick Gold (ABX) reported mineral reserves of 64.5 million ounces, a decline of 25% year-over-year (or YoY). The reasons for this considerable decline in reserves are:
- the divestment of ~9.2 million ounces associated with Veladero and Cerro Casale
- reclassification of ~14.0 million ounces of Pascua-Lama reserves to resources
Apart from these declines, Barrick added 8.0 million ounces of reserves at its existing operations through drilling, which more than replaced the 6.2 million ounces depleted through processing in 2017. The company kept its gold price assumption of $1,200 per ounce unchanged to calculate the reserves.
ABX stated that since 1990, it has found 129 million ounces of gold for an overall finding cost of about $29 per ounce. That’s about half the industry average.
The company successfully added 8.0 million ounces of gold reserves in 2017 through mine exploration drilling. Its 2018 greenfield exploration program should focus on the prolific Cortez district in Nevada, and the Frontera district in Argentina and Chile. It’s allocating 80.0% of the total $185.0 million–$225.0 million budget to the Americas.
Higher reserve grade
The average grade for the company’s reserves improved 17% from 1.33 grams per ton to 1.55 grams per ton. The company boasts the highest grades in the industry. Its closest peers, Newmont Mining (NEM), Goldcorp (GG), Kinross Gold (KGC), and Newcrest Mining, have lower grades than Barrick.
Higher grades are one of the most likely reasons for Barrick’s lower all-in sustaining costs. We’ll look at this relationship more in the next part of this series.