Gold miners (GDX)(GDXJ) must compensate for every ounce they remove from the ground. While mines have finite lives, the companies operating them don’t. As a result, it’s important to look at how miners are trying to replace and grow their reserves.
Although Barrick Gold (ABX) had higher reserves compared to Newmont Mining (NEM), that changed in 2017. At the end of that year, Barrick Gold reported mineral reserves of 64.5 million ounces, a decline of 25% year-over-year (or YoY). In comparison, Newmont Mining’s reserves came in at 68.5 million ounces for 2017, unchanged from 2016 due to additions and revisions fully replacing the depletion.
Drivers for reserve growth
The major drivers behind the decline in Barrick Gold’s (ABX) reserves were the divestment of ~9.2 million ounces associated with Veladero and Cerro Casale as well as the reclassification of ~14.0 million ounces of Pascua-Lama reserves to resources.
Newmont Mining replaced its reserve depletion for the first time since 2012. It reported the addition of 6.4 million ounces of gold reserves during the year, of which 4.4 million ounces were added through exploration and 2.0 million ounces were added through revisions and acquisitions. Both companies use the same assumption of a gold price of $1,200 per ounce for reserves estimation.
The average grade for Barrick Gold’s reserves improved 17.0% from ~1.3 grams per ton to ~1.6 grams per ton. The company possesses the highest grades in the industry.
Among its closest peers, Newmont Mining (NEM), Goldcorp (GG), Kinross Gold (KGC), and Newcrest Mining have lower grades than Barrick. Newmont Mining’s reserve grade declined 5.0% to ~1.1 grams per ton, compared to 1.2 grams per ton in 2016.