Gold miners tarnished by tumbling reserves – by David Parkinson (Globe and Mail – May 14, 2014)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

For the world’s major gold mining companies, bullion’s sharp price decline has put them in an unfamiliar and not altogether comfortable condition: They’re shrinking. The question now is whether the downsizing is destined to continue – or if a bit of price stability will lure them back into their comfort zone of rebuilding reserves through acquisition.

A new report from independent research firm SNL Financial notes that the combined gold reserves of the five biggest global gold producers (Barrick Gold Corp., Newmont Mining Corp., Goldcorp Inc., AngloGold Ashanti Ltd. and Kinross Gold Corp.) fell by 11 per cent in 2013. Their reserve total has retreated to 2006 levels, wiping out six years’ worth of growth.

The culprit was the gold price. As it tumbled from $1,800 (U.S.) an ounce in late 2012 to $1,200 in late 2013, the miners were forced to slash the price assumptions they used in their reserve calculations – and remove higher-cost ore from reserve estimates as producing it was no longer economic.

The result has not only been substantial and costly writedowns to reserves, but also a shrinking reserve base that is far from business as usual at the big miners. In a business where reserves are traditionally considered the key to sustaining future production and assuring growth, companies have instead been forced to focus on reducing costs and narrowing their scope. Big companies have been looking more to sell off assets than buy new ones.

At the same time, though, gold mining reserves have become decidedly cheap. In terms of market capitalization for those five gold majors, the market is now paying about $180 an ounce of reserves – only a little more than half what it was paying in 2011, and 25 per cent less than it was paying for similar reserve levels in 2006.

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