Gold Forum Americas 2024 – Setting the Stage
Victor Flores sets the stage - look out for his morning notes
Well-known mining analyst, Victor Flores, will provide color commentary for this year’s Gold Forum
The 2024 edition of the Gold Forum Americas is about to kick off, and investors and analysts will spend the next few days listening to gold companies, both large and small, explain why they are the investment of choice. Executives from these companies and their interlocutors will participate in hundreds of 1-on-1 meetings as the former try to glean information about investors’ responses to their story and the latter dig for that elusive piece of information that signals the difference between a “buy” and a “sell.”
The ensuing Morning Notes from Gold Forum Americas will comment on the presentations of these companies, but to start, this piece focuses on the backdrop of the proceedings. What are the big-picture challenges that the industry faces? How should investors think about these risks, and what questions should they pose to the management teams? In addition, we include e a primer on key, specific issues facing each top gold company. These could help shape the questions investors may wish to ask following the formal presentations and provide further guidance for discussion during one-on-one sessions.
EY Top Risks Facing the Mining Industry in 2024
EY’s list of the top 10 challenges facing the mining industry in 2024 should probably not surprise anyone who follows the gold industry. Notably, five of the ten are related to what I would describe as “people issues,” and interestingly, cyber risks appear for the first time as a top-ten item.
ESG
Capital
License to Operate
Climate Change
Digital and Innovation
Costs and Productivity
Geopolitics
Cyber
New Business Models
Workforce
Below are my observations regarding the EY top 10 risks and how they might impact the gold industry and the participants at the 2024 Gold Forum Americas.
ESG
ESG consists of so many components, often interlinked, and any one of which can have a tremendous impact, that it is no wonder that this rises to the top of the list. No CEO wants to receive the call about an incident, and investors do not want to see this type of news in their inboxes. But what type of incident? It could be a true environmental disaster (E), or a community that has succeeded in putting a stop to an important development project (S), or a government that has just moved the goalposts (G). Herein lies the problem with “ESG.” The markets have conveniently lumped disparate items into one convenient (for them) moniker and left the mining company to figure out how to address it in all its complexity. Investors, rating groups, and regulators have piled in with endless surveys, rules, and disclosure requirements that threaten to swamp the company’s ESG teams.
While I have a fair amount of sympathy for mining companies overwhelmed with ESG-related red tape I have no patience for companies that do not take ESG seriously, for several reasons. First, the focus on ESG is nothing new and companies have had time to prepare for the additional regulatory/reporting burden. Secondly, it is isn’t as if the world is ganging up on the mining industry while other industries get off scot-free. If you think having to deal with ESG matters is tough for the mining industry, try being the CEO of an oil producer or a chemicals manufacturer. Third, while ESG is complex, it is a well understood axiom that large problems are solved by breaking them into smaller problems. Nobody said you can’t split ESG into E, S, and G and have accomplished executives in charge of each. Finally, and most importantly, taking care of ESG is simply a sound business practice. This is reminiscent of the old argument against enforcing safety practices because it would “hurt profitability.” Everybody now understands that safe mines are productive mines. The industry needs to understand than an ESG responsible mine is a productive mine. An environmental incident not only impacts the profitability of the company involved it also impacts the way in which the market valued the entire industry.
Companies that do not take their Stakeholder Mapping and Stakeholder Engagement Plan as seriously as they would take a Feasibility Study, a Project Execution Plan, or a Preventive Maintenance Plan are bound to underperform over the long term.
Capital
The issue of capital made it to number 2 on the EY list in 2024, up from 8 in 2023, so it is clearly seen a growing risk by industry executives. But to me this is one of those items that ebbs and flows with the markets. When share prices are high and capital plentiful, the industry doesn’t seem to give it much thought, and is happy to spend with abandon. When share prices are low and capital in short supply, the industry feels abandoned. The reality is that there is never enough capital to build all the projects that the industry has on the drawing board. And that is a good thing because it allows the capital markets to do their job and direct scarce resources to where they are expected to deliver the highest returns. CEOs who push marginal projects should not blame “the markets” for refusing to finance them; rather, they should find ways to improve returns or move onto another project.
The other (and more valid) concern with respect to capital is the increasing cost of building projects. A project that would have cost US$1 billion now costs, say, $3 billion, and company executives have to figure out how to raise increasingly large amounts of capital. In theory a project with large capital but also with excellent potential returns should be able to raise the necessary finance, but the reality is that investors often balk at the numbers. And investors need to understand that attending to E, S, and G costs money and often adds significantly to the capital cost of a project.
Finally, there is the issue of capital cost “creep,” which in many instances has turned into a “leap.” Investors are rightly fed up with hearing that a project is now 50%, 80%, 120% over budget and CEOs and industry investors should rightly lose sleep over this. But historically projects that go over budget are projects that have initiated construction with the least amount of detailed engineering. Why? To “save” money and or to boast of higher IRRs when raising capital. CEOs and investors should think for the long-term; projects will go through several commodity cycles and (usually) through expansions and extensions. When building a project, it makes sense to get the fundamentals right, and returns will take care of themselves.
In summary, capital should probably always be towards the top of the list of risks.
License to Operate
If you ask me this should probably be number 1 on the list, but I can understand why the all encompassing “ESG” ranked first. Still, this is the most important aspect of “S.” Perhaps the fact that it merited its own category, rather than being lumped into “S,” is a recognition of its importance. Obtaining and maintaining the social license to operate begins with a comprehensive stakeholder mapping program. So, what is a “stakeholder?” The general business definition is that it is an individual, group or organization that has a direct or indirect interest or concern in a business. But I recently learned the historical meaning of the word: stakeholder is the person who looks after the wagers of a group of bettors. Combining the two gives us this: stakeholders are individuals, groups, or organizations that directly or indirectly have a say whether a mining company and its investors will make a return on the capital they are investing. Seen this way, stakeholder mapping becomes the exercise of determining who holds the stakes in the success or failure of a mining project, particularly those who have an indirect interest. And the stakeholder engagement plan is the process of ensuring that the indirect stakeholders are aligned with those directly involved.
The key to obtaining the license to operate is to map out early in the process who the players are and developing a strategy to earn their support (or, at least, to keep them on the sidelines). And, of course, preserving the social license once it has been obtained is an ongoing effort.
Climate Change
Another item that could well have been bundled into the ESG category although I can see why EY decided it merits its own place on the list and why executives are concerned. The industry will be required to disclose their Scope 1 and 2 emissions (Scope 3 is not far behind) and there is a great deal of pressure from agencies and regulators to commit to a “net zero” goal. The latter is an exercise fraught with danger. Overpromise and risk the wrath of regulators and investors. Under promise and get accused of being a climate change denier. With concerns around capital (see number 2 on the list) how much capital should be devoted to implementing carbon mitigation strategies? When announcing carbon reduction goals, how much faith should be put into promising technologies that have yet to demonstrate they work at scale or are cost effective? A middle road, consisting of realistic, achievable goals, backed by science and defensible assumptions, is the way to go, in my view.
Companies are also scrambling to understand what would happen to their business if climate changes accelerate and what they should do to prepare. Will the water source for the mine run dry? What type of conflict could this generate with the local communities? Will extreme weather events become so commonplace that normal operations become severely disrupted? What infrastructure investments will be required to mitigate this? The starting point for answering and then addressing these questions is to begin gathering the data and making well-reasoned projections of any expected climate change-related impacts. And, by the way, this is good practice regardless whether one is a believer in, or a denier of, climate change.
Digital and Innovation
This category ranked 9th in the prior EY survey and the cynic in me can’t but think that it has climbed to fifth due to the recent excitement over everything to do with AI. The FOMO is palpable and no self-respecting gold industry CEO wants to miss the boat. More seriously, mining companies are interested in harnessing the potential of AI and digital technologies, and this is a good thing for an industry that has traditionally resisted change and innovation. In particular, the potential to process and analyze the vast databases – geologic, geochemical, geophysical – to improve the odds of making new discoveries is compelling. Data analytics could be deployed across operations, whether to improve processing plant performance, predict stope geotechnical performance, or integrate ESG reporting.
The challenge for the industry will be to determine what problems to prioritize and which systems to implement (and, of course, allocate the required capital). The risk will be to implement this with the fewest hurdles and, when it is all done, hope that it delivers the desired (and promised) results. As with any new, rapidly evolving technology, the worry is that early adopters will end up with something that becomes rapidly obsolete.
Costs and Productivity
Just as I don’t quite understand why Digital and Innovation rose to 5th, I don’t understand why costs and productivity only ranks as 6th. This should be up there with capital as this is an issue as old as mining and goes to the heart of the industry’s raison d’être, which is to profit from the extraction of mineral wealth. I can only surmise that the recent, healthy prices for most metals and lower inflation have softened the concern around costs and productivity. Or perhaps AI is going to transform gold mining into a low cost, highly productive sector.
Fortunately, the industry does have a track record of continuous improvement, especially with regard to productivity, particularly in jurisdictions where it is acceptable to replace labor with capital. Modern processing plants operate with few people, with automated systems allowing a handful of employees to control the equipment from a central control room. Similar automation is now being deployed to mining operations, with the further benefit of keeping employees out of harm’s way. In jurisdictions where it has been more difficult to replace labor with capital, the industry is going to have to invest in skills upgrading or find ways of implementing that switch.
Going forward, the biggest challenge, in my view, will be the recruitment and training of the next generation of mining professionals. Interest in mining and geosciences has been low for some time and the production growth projected to deliver the metals needed for energy transition will require many more professionals than universities globally are producing. As the market for this talent becomes more competitive, the gold industry could find itself at a disadvantage, especially if fossil fuel incumbents continue to push into battery metals in a big way. Becoming more productive is one way to fight against this trend.
After labor, the other big input for the industry is energy-related: fuel, electricity, explosives, and reagents. The industry already does a good job of optimizing the use of explosives and reagents, although there are no doubt further improvements to be achieved. The holy grail of fossil fuel reduction (or elimination) is the introduction of electric fleets. The industry’s experience, in my view, broadly matches that of the electrification of the automobile: initial excitement followed by the realization that it is going to take longer and cost more than planned (don’t forget items 2 and 6 on the list!). The other potential game-charger is the widespread introduction of ore sorting. The potential to reduce the amount of material going into a processing plant by perhaps up to 50% would reduce capital and operating costs significantly. This innovation also received a fair amount of press but has also taken much longer to implement (I don’t believe there is currently a single gold mine of significant scale using ore sorting).
Geopolitics
Another category that could neatly fit into the ESG bucket. Does it merit its own section? Probably not, because all the things that governments might do – increased taxes and royalties, not refunding value-added taxes, increased participation, arbitrary rulemaking, informed consultation, new environmental laws, among others – already fall under the “G” in ESG. The other thing that perplexes me is that in the prior survey this risk was ranked 2nd. Have geopolitics really improved that much in the past twelve months? I think not.
Still, it is probably important to separate the administrative aspects of government (taxes, rules, regulation) from the geopolitical aspects of government. What sort of geopolitical dimensions? I can think of a few examples. A foreign government with strong influence over a country where I wish to build a mine uses that influence to steer the project to their national companies. Or uses its dominance of certain inputs to prevent my mine from purchasing them. I would argue that this interpretation of the risk of geopolitics is fairly benign for the gold industry. Trade in gold is global and relatively open and the inputs used in mining and processing widely available and not particularly proprietary.
Being a good partner and understanding the position of the government is probably the best way of addressing this risk. Ultimately, the mine has a relationship with the host government and the people of that country, and if that relationship is properly looked after it is much less likely that a third party government could interfere.
Cyber
Cybersecurity comes in at number eight of the top ten risks facing the industry, which is interesting because it did not make the top ten in last the previous survey. The industry has always been concerned by cyberattacks from anti-mining groups/individuals but the list of potential threats has now grown to encompass cybercriminals of all stripes. In that sense, the mining industry is no different than any other modern business: the Chief Technology Officer must be prepared to fend off cyber threats from all corners of the digital world. In an industry that is global in nature, with operations spread around the globe, it can be difficult to ensure that protection is consistently strong along the chain of communication and evildoers will target the weakest link in that chain. Like other industries, miners will have to continue investing in the latest technology to protect their assets and employees from cyberthreats. The acid test for cyber-preparedness is the extent to which the Board and executive management have developed a long-term, cybersecurity policy, provided the requisite funding, and ensured that the policies and procedures to prevent cyberthreats are well-understood throughout the organization.
New Business Models
Frankly, this seems a bit of a throwaway term that could encompass any number of different risks to the current way in which gold mining conducts its business. Non-gold producers are rightly concerned with technologies that would increase recycling and with the pressure to produce “green” metal. Similarly, they are preoccupied with sourcing green energy and analyzing whether increased vertical integration would enhance their ability to integrate new technologies. There are other technologies that could change the competitive landscape, from remote sensing exploration technologies to metallurgical processes to recover low-grade stockpiles to carbon capture and storage. The gold industry, which is smaller and has less resources than its diversified cousins, will have to deploy these technologies if they become widespread among energy producers and the diversified miners. Determining which technologies to implement and the quantum of the investment could become important strategic decisions that could ultimately differentiate the leaders from the also-rans.
Perhaps the biggest threat to the gold industry from a new business model has already emerged and become mainstream. I am referring to cryptocurrencies, a concept that did not exist a generation ago and which in many ways has stolen gold’s historic role as a store of value and means of speculating on global macroeconomic events. More on this further below.
Workforce
Labor is a perennial concern in the mining industry and the fact that it only comes it at number 10 (7 in the prior survey) indicates to me that worries regarding the workforce are at an ebb after a period of increased labor inflation. But regardless of whether labor concerns are waxing or waning, they should probably be in the top ten year in and year out. While the mineral resource might be at the core of every mining company, extraction is not possible without the right people. I would suggest that the primary concern should be the development of new mining professionals especially as the energy transition movement gathers steam. The figures for the required increase in the production of energy transition metals – copper, nickel, lithium, graphite, etc. – are daunting. This implies that the industry will need armies of new professionals to discover, quantify, study, engineer, build, and operate all these new mines. These energy transition producers are likely to have preferential access to these professionals which means that the gold industry is going to be at a disadvantage and it is going to have to be extremely competitive to attract the talent it needs to sustain the industry.
Then there is the issue of training and retaining the blue-collar workforce that is the backbone of all mining operations. In those jurisdictions where gold mining sits side by side with energy transition producers there will be fierce competition for experienced personnel.
The gold mining industry is going to have to devote more resources to developing, training, and retaining the workforce of the future.
Gold Industry Specific Challenges
The EY survey deals with the big picture issues affecting the mining industry and, by extension, the gold producers. But there are a number of gold industry idiosyncratic issues and challenges that gold producers must face. The list, in no particular order, is as follows:
Underperformance relative to gold
Trading volumes
Competition vs other platforms
Relevance/Marketing a niche sector
Retreat of equity providers > increasing role of royalty/alternative funding providers
Transition to other commodities
Energy transition
Industry own-goals
Underperformance relative to gold
Nobody likes talking about this, but the statistics are there if you care to look them up. In the past five years to [date], the GDX index of gold producers has returned [29%] while gold has advanced by [64%] and the S&P 500 has gained [84%]. I can’t refute the argument that this simply means that gold equities are very cheap relative to the gold price and that sooner or later investors will recognize this and there will be a sharp increase in share prices. And yet the reality is that for the past five years gold equities have not delivered any leverage to gold and, given the risks inherent in gold mining, the risk adjusted returns leave much to be desired. One would have also thought that gold equities would have been buoyed by the overall equity market, but this has not been the case.
There are many theories as to why gold equities have underperformed gold which I am not going to dwell on. It is now up to the industry to articulate, with strong and well-reasoned arguments, why the sector is attractive. These arguments must go beyond the simplistic assertion that the underperformance is temporary and will soon be reversed.
Trading volumes
As the industry has consolidated trading has become concentrated among the larger producers and trading volumes could be described as decent. Newmont and Barrick each trade, on average, about US$375 million daily. Agnico-Eagle, [which now boasts a market capitalization greater than Barrick’s], has daily volume that is less than half of that. Microsoft, meanwhile, trades more than US$8 billion every day and Apple trades more than US$14 billion daily. I believe that investors have lost interest in gold equities because the volumes are insufficient to attract investors that have become accustomed to deeper pools of liquidity, especially those that see gold as a tactical investment. Investors will find much more liquidity in the bullion market and even those that won’t or cannot invest in bullion directly can invest in the SPDR Gold Shares (GLD) which has daily volume of almost US$1.5 billion. I believe that boosting daily share volumes is another task that the industry must take to heart.
This raises another question: should gold producers be buying back their shares? The stock answer is “yes” if the shares are extremely undervalued and the company doesn’t have any other capital projects that would deliver a higher return. But herein the quandary – if buying back shares is the highest return investment a company has, then perhaps the shares aren’t really as undervalued as management asserts. Moreover, buying back shares reduces liquidity at a time when increasing liquidity may lead to improved valuation. In this context buying back shares needs to be weighted very carefully.
Competition vs other platforms
Perhaps I should have been more direct and not called them “other platforms.” What I’m talking about here is cryptocurrencies. I dot not profess to understand them and cannot explain what the rationale is behind them. To me it is something that was created out of the ether (they call it “mining” to suggest there is some substance to it). Gold, meanwhile, is mined, is tangible and has served as a medium of trade for thousands of years. But what cannot be denied is that, despite FTX and other “crypto scams,” trading crypto is very popular and bitcoin now trades in excess of US$30 billion daily.
It is difficult to untangle whether bitcoin investors would have invested in gold if cryptocurrencies hadn’t come along but some of the characteristics that make bitcoin attractive are the same as those for gold and therefore it stands to reason that some of this investment would have otherwise gone into gold. What this means for gold equities is a bit more uncertain, but if there had been more pent-up demand for speculative investments one could argue that the equities would have benefited as well in the absence of a crypto alternative.
Relevance/Marketing a niche sector
Ok, so now I’ve said it. Gold mining is a niche sector. The industry needs to wrap its mind around this and develop strategies to effectively market itself. I believe this has to go beyond simply assuming that investors will be drawn to gold equities because gold is doing well. Arguably the World Gold Council, which is funded by the gold producers, has been very successful in drawing attention to gold as an investment. But what is the industry doing to market the benefit of the equities? It also requires being realistic about what the gold mining industry is and targeting investors that would consider an industry with those characteristics.
Retreat of equity providers > increasing role of royalty/alternative funding providers
The gold mining industry has traditionally relied very heavily on the equity markets for its funding, supported by a plethora of specialized funds that allocated this capital. That financing model has broken down as many of these specialized funds have lost assets, a situation exacerbated by the retreat of many project finance banks that also provided financing to the gold mining industry. This has led to a greater reliance on royalty companies and other alternative funding providers. The immediate consequence of this is that fewer projects are being financed (arguably a good thing, as it presupposes that only the best projects obtain financing) but it also suggests that the incumbents, which are currently generating strong cash flows, will have to rely on cash from operations to fund their new projects. Moreover, they will have a greater say in which projects owned by juniors get developed.
Transition to other commodities
The industry’s attitude to other commodities has changed (read: softened) over the years, particularly as the so-called “gold premium” has faded away (or, perhaps, the perception that there was a gold premium has faded away). The other reason the industry has changed its view on commodity diversification is the need to attain size. It is much easier to bulk up with copper assets than trying to add gold production. And thus far there is no indication that the addition of significant copper production is hurting the valuations of these companies.
Energy transition
In general, I would see the ongoing energy transition as a significant challenge for the gold mining industry as investment and talent flows to those companies that are focused on the production of energy transition metals. Fleet electrification will be a benefit for the industry but will require significant investment. Will gold producers join the rush to produce energy metals and diversify beyond the obvious (copper) and pursue other opportunities? Thus far we have not seen this, but perhaps it’s only a matter of time. If capital is unavailable for gold projects but is available for energy transition projects then it wouldn’t be surprising to see companies making the switch.
Industry own-goals
Perhaps I’m “over-egging the dough” on this one, but I honestly believe that the industry doesn’t do itself any favors in the eyes of investors with the own-goals it has scored against its own net. By this I mean the incidents that have soured investors and, more importantly, potential investors on the sector: massive capital blowouts, reserve downgrades, environmental incidents, consistent failure to meet guidance. One can shrug one’s shoulders and say “well, that’s mining” or argue that professional investors get paid to pick those companies that stay on the straight and narrow, but the reality is that company’s that investors considered invulnerable have succumbed to these issues. And arguing that these own-goals come with the territory signals acceptance and resignation that is not right. The industry needs to do better or it will continue to struggle to attract investment.
Company Specific Challenges and Opportunities
Having looked at mining industry issues and challenges specific to the gold mining industry, now is the time to dig into the issues that are germane to individual companies. Listed in alphabetical order are those listed producers with annual output greater than one million ounces in 2024 or projected for their 2025 fiscal year.
Agnico-Eagle
Perhaps the largest differentiator between Agnico-Eagle and the other senior peers is that Agnico has managed to build a large producer while staying (mostly) geographically restricted and with a low geopolitical risk exposure. With a Canadian core of production consisting of its Abitibi producers (Goldex, Malartic, LaRonde, Macassa, and Detour) and its Nunavut operating hub (Meliadine, Meadowbank, and Hope Bay) the company can rightfully argue that it is not struggling daily to keep centrifugal forces from tearing apart a far-flung production empire upon which the sun never sets. The remaining assets in Finland, Mexico, and Australia may be more distant, but account for a small percentage of production and reserves.
Moreover, the interesting projects all fall within the Canadian core. Detour, Canada’s largest gold mine, has now stabilized and the company is studying how to boost production to one million ounces per annum. The company is leveraging the knowledge gained mining the lower grade, high volume Goldex deposit to develop underground production at Detour but also, more significantly, at Odyssey South and East Gouldie at the Malartic gold mine (Canada’s second largest gold mine). The company is once again talking about the potential to develop the Upper Beaver project, which has been in the portfolio for many years, although the returns are perhaps not as attractive as some of the company’s other opportunities. In Nunavut, the results from its exploration programs at Hope Bay will determine what long-term level of production this asset can achieve.
As Canada becomes an increasingly important part of the production profile, and home to the growth projects, the relevance of the other areas comes into question. The company has tried for many years to boost the production from its so-called southern division (Mexico) but has not found the right asset or transaction to boost its production in the Americas ex-Canada. Kittilä (Finland) and Fosterville (Australia) are both solid producers but both are getting deeper and will continue to require significant sustaining capital to maintain production.
AngloGold Ashanti
AngloGold Ashanti has spent the past few years cutting its ties to South Africa and, other than its domicile, it is now a completely international company, listed in New York and headquartered in Denver. The company’s 2.7 million ounces of annual production now come from sub-Saharan Africa, Latin America, and Australia and the focus is on improving the operating performance of the portfolio, with specific attention to reducing the cost profile of the higher cost assets.
The company’s most significant near-term challenge is to realize the potential of what is arguably its most significant asset (and possibly one of the greatest gold deposits on the planet), the Obuasi mine in Ghana. Although the ramp-up in 2024 has been slower than planned, the company anticipates production of up to 375,000 ounces in 2025. Obuasi’s significant mineral endowment could sustain these levels of production for +20 years.
Over the medium-term, the company needs to realize value from the portfolio that it has built through (mostly) its generative programs. In Nevada the company has outlined plans for the development of the relatively modest North Bullfrog project, but the real prize would come from the development of the Silicon and Merlin deposits, which together boast a resource of some 13 million ounces in the heart of the company’s 16.6 million ounces in the Beatty district. Beyond that, the company has a significant asset base in Colombia that has been difficult to move forward due primarily to local anti-mining attitudes. In particular, the Quebradona project has the potential to produce 500,000 ounces of gold equivalent production, and would make AngloGold a meaningful copper producer.
B2Gold
B2Gold has grown globally through M&A and produced over one million ounces per year over the past four years. In 2024 it is experiencing a dip before forecasting an improvement to over one million ounces next year. Other than a rump of production in Central America, the company’s production currently comes from Africa (as much as 75%) and Asia (25%). B2Gold anticipates that production at its flagship Fekola mine in Mali will rebound to some 600,000 ounces next year, with the Otjikoto (Namibia) and Masbate (Philippines) mines staying steady at just under 200,000 ounces each. Managing risk in Mali will be key for the company.
In early 2023 the company announced the acquisition of Sabina Gold, which was in the process of building the Goose project in Nunavut, an asset that should begin production in 2025. This high-grade asset has seen its share of capital cost increases, which is not unexpected given its remote location, but once at full capacity is forecast to produce some 300,000 ounces per annum. The arctic location is challenging and B2Gold will have to learn to apply lessons learned in Africa and Asia to a new environment.
B2Gold also continues to try to find a way to create value from its Gramalote project in Colombia. After much back and forth with its former partner, B2 now controls the asset and has published some preliminary numbers for the asset. This assumes that a 6.0 million tonne per annum plant would produce some 185,000 ounces of annual production over 12.5 years with a capital cost of US$807 million and an all-in sustaining cost (AISC) of US$886 per ounce. A feasibility study is scheduled for completion in 2025.
Barrick Gold
As management will admit, the biggest challenge for Barrick Gold is to arrest the share price underperformance relative to its senior peers. The merger with Randgold Resources five years ago and the revamped management team was expected to lead the company into a new era focused on lean management, value maximization of its tier-1 assets, and a renewed focus on geology, exploration, and mineral resource management. The company argues that it has done all of this and more, and that Barrick’s stock price is heavily undervalued. The new management team has studiously avoided value-destructive M&A and has focused instead on its organic opportunities.
There are other catalysts that the company cites, and these should be, in my view, the subject of further questions. The company is scheduled to provide further details on the expansion of the Lumwana copper mine in Zambia in early September and, importantly, more details around the development options for the Fourmile project in Nevada towards year-end. Barrick has also suggested that a doubling or tripling of the reserves at Leeville (part of the NGM joint venture with Newmont) is in the offing, but more information on how this would lead to value creation is important.
Mali has become a source of risk for the company – settling its differences with the government could lead to some improvement in the share price. Finally, the company is making a big bet on the Reko Diq copper-gold project in Pakistan and investors need to better understand the risks and opportunities that this project entails.
Endeavour Mining
Endeavour has carved a niche for itself as a West African-focused gold producer following a growth-through-acquisition strategy that has seen it acquire numerous assets and companies, most recently Semafo and Teranga. This approach has also let to a series of follow-on deals as the company continuously tries to upgrade its portfolio, leaving it with a core of four mines and one advanced construction project that together produce in excess of one million ounces per annum. The company has backed up the transactional side of the business by continuously investing in exploration as part of its goal of increasing the overall life of its portfolio.
With the startup of the Lafigué project in Côte d’Ivoire Endeavour will add a further 200,000 ounces per year of production which, along with the BIOX project at Sabodala-Massawa will put the company well on its way to exceed 1.3 million ounces per annum in 2025. As to what comes next it would appear that the most promising project is the Assafou deposit on the Tanda-Iguela property in Côte d’Ivoire, where a pre-feasibility study is scheduled to get underway later this year. In addition, the company has other advanced exploration assets in Mali, Burkina Faso, and Guinea. Further M&A, however, should not be ruled out.
Evolution Mining
Evolution has made a name for itself by acquiring assets that others were disposing of and turning them around, although eventually it has found the need to exit its earliest investments as it has increased the heft of the assets it has purchased. With the acquisition of 80% of Northparkes in December of 2023 the company is now at that one million ounce per year level, when including copper as an equivalent, for the fiscal year that has just commenced. The Cowal mine, acquired from Barrick, remains the company’s flagship operation, followed by the Ernest Henry copper-gold mine. Evolution continues to invest significant amounts in its Mungari operations, one of the first operations that it acquired, with an A$250 million investment in the processing plant to allow increased production as part of its regional hub strategy.
Perhaps the most controversial decision by Evolution was the decision to enter North America with the acquisition from Newmont of the Red Lake mine in Ontario in 2019 and the acquisition of Battle North (formerly Rubicon) for its Bateman (formerly Phoenix) project, also in Ontario in 2021. The latter had been closed down after issues with the continuity of the resource, while the former was heavy on labor and infrastructure relative to its production. The company was taking a page out of its Australian playbook, acquiring assets that were no longer deemed viable by its owners and positioning itself in a historically important gold camp. At the time of the acquisition the company had noted good resource reconciliation at Red Lake and had begun to right-size the workforce but production goals have been difficult to achieve and capital spending remains significant, and the asset remains breakeven at best.
Gold Fields
Gold Fields appears to have largely recovered from the impact of the failed acquisition of Yamana in 2022 (recall that the shares fell sharply when the acquisition was announced). The market has approved of the steady performance of the mines in Ghana and Australia and the stabilization of output at South Deep. Gold Fields generative exploration led to the discovery and now production from the Salares Norte project in Chile. Although this got off to a slow start due to the early onset of the southern winter, by next year this will be another significant producer in the company’s portfolio.
The more recent queries for Gold Fields arise from its decision to acquire Osisko Mining. The company believes that Windfall project has the potential to rival some of the other great, historic gold camps in Canada such as Red Lake and LaRonde. The company had already entered into a 50/50 joint venture with Osisko on the Windfall project for an entry cost of approximately US$525 million but is acquiring the balance for US$1.1 billion. Gold Fields will have to explain the timing (why not wait until Salares Norte was fully ramped up?), the quantum, and most importantly what its development plans for the asset are. Gold Fields is making a significant investment to get a significant foothold in North America and questions around production levels, capital and operating costs, and timing are pertinent. The onus is now on the company to demonstrate that their geologic model and their financial calculations are correct.
Kinross
The market seems to be reasonably impressed with Kinross’ steady delivery and a portfolio (very roughly) balanced between the United States, Latin America and Africa. The sale of the Russian portfolio two years ago has been also well received and the company’s long foray into that country now truly forgotten (and no longer weighing on the company’s valuation).
Although the company has some growth opportunities within the existing portfolio, primarily at Fort Knox (Alaska) and Round Mountain (Nevada) the company’s principal focus for growth is the Great Bear project in Ontario. It is probably not an overstatement to say that the company has bet its medium-term future on the success of this project. The company believes that it can add to the existing +6million ounce resource and is highlighting what it sees as the similarities with the storied Hemlo camp. Kinross could conceptually bring it into production in 2029 but between now and then the company will have to fill in many of the important details, including throughput, production profile, and capital and operating costs. The company is also highlighting the potential of the Lobo-Marte project in Chile. This project has been in the company’s portfolio for many years and has been through several iterations and while it boasts a large resource is low-grade. As with Great Bear, the company needs to fill in the blanks: mining rate, production profile, capital and operating costs, timeline.
Harmony
While its peers have been happy to reduce their exposure to South Africa, Harmony has been content to take these assets off their hands make the required investments to extend their lives. Thus, some 90% of Harmony’s 1.5 million ounces of annual production comes from South Africa (with the balance provided by the Hidden Valley mine in Papua New Guinea). The South African portfolio could be further subdivided into larger-scale producers which are still receiving significant capital investment, surface retreatment operations, and smaller legacy mines that are recovering gold from remnant stopes.
Harmony has longed talked about expanding into sub-Saharan Africa, but in 2022 it acquired the Eva copper project in Australia and is now working on the feasibility study and permitting to develop the project. Eva is a mid-size copper project containing some 350 million tonnes of material grading 0.42% copper and is planned to be an open pit with a reasonably low (1.5:1) strip ratio. The company anticipates making an investment decision in 2025 followed by a two to three-year construction period. The big question for Harmony is the capital cost of the project and how this will be financed.
The company is also hoping to obtain the Special Mining Lease for the Wafi-Golpu copper-gold project in Papua New Guinea which is now a joint venture with Newmont Mining. This much larger project would make Harmony a significant copper producer, but obtaining the SML has been particularly time-consuming. The partners will then have to finalize their capital and development plans and finance the project. Wafi-Golpu is now a project for the next decade. This project accounts for some 45% of Harmony’s reserves, such that developing this asset is critical for unlocking value.
Newmont Mining
It took some time for Newmont to digest the acquisition of Goldcorp, but almost six years since then the market seems to be content with the portfolio that emerged. More significantly, the market did not get indigestion when Newmont acquired Newcrest less than one year ago. Rather, it would appear that the market likes the mix of assets, and the increased market capitalization and liquidity.
The company is focused on extracting additional synergies from the Newcrest acquisition and has a plethora of projects on the go, including Afaho North in Ghana, and the Tanami 2 expansion and Cadia block caves in Australia. If the reserves at Leeville double or triple, Newmont will benefit as a significant shareholder in NGM.
Newmont is not shy about highlighting the many copper projects it has in its portfolio, including Red Chris and Galore Creek (British Columbia), Wafi-Golpu (Papua New Guinea), Yanacocha (Peru), and Norte Abierto and Nueva Unión (Chile). The question for Newmont is when and how can these projects be brought to account, as well as the capital commitment required. The projects in Chile consist of deposits that were discovered decades ago and have been through several iterations and studies without being given the go-ahead. Similarly, the Yanacocha sulfides and Galore Creek projects have been discussed for many years. Wafi-Golpu is in a complex jurisdiction and in a challenging physical setting.
Northern Star
Northern Star has grown by acquiring non-core assets from other companies and improving their operating performance. This aggressive deal-making includes the acquisition of Pogo from Sumitomo (2018), the acquisition of 50% of KCGM from Newmont (2019) and the subsequent acquisition of the other 50% by merging with Saracen in 2021.
The acquisition of Kalgoorlie from Newmont and (later) Saracen has boosted Northern Star to senior producer status centered around three production hubs: Kalgoorlie and Yandal in Western Australia and Pogo in Alaska. Kalgoorlie consists of the KCGM, Carosue Dam, Kanowna Belle, and SKO operations, which together delivered almost 900,000 ounces in the fiscal year to 30 June 2024 (FY24). Yandal consists of Jundee, Thunderbox, and Bronzewing, the three contributing a total of almost 500,000 ounces in FY24. Finally, the Pogo mine in Alaska produced just over 275,000 ounces. The company is currently in the midst of an expansion of the milling capacity at KGGM which will increase processing capacity from the current 13 million tonnes per annum to 23 million tonnes in FY27 and eventually 27 million tonnes in FY29. Even without the benefit of the major plant expansion program, the company is projecting an increase in production in FY25 to 1.65 to 1.80 million ounces, delivered through incremental improvements at each of the production hubs, with a further increase to 2.0 million ounces in FY26.
The Royalty Conundrum
The royalty space has grown significantly as investors have embraced a business model which (largely) avoids operating risk, boasts strong green credentials, enjoys a free ride on exploration, and whose lack of high operating leverage allows significant dividend payouts. As Royal Gold points out, royalty companies embody the best of a direct investment in gold, such as a gold ETF, and the best that operating companies can offer, all while avoiding the downsides of each. Compared to gold ETFs, royalty companies pay dividends and benefit from exploration upside. And, compared to operating companies, royalty companies are not responsible for the (not-insignificant) ongoing capital investment.
Many traditional gold investors have given up on traditional gold producers and now get their gold exposure via the royalty companies. This has propelled two of them – Franco-Nevada and Wheaton Precious Metals – to senior status, with market capitalizations that rival the largest gold producers. Three others – Royal Gold, Osisko Gold Royalties, and Triple Flag – are larger than most of the mid-tier producers. A plethora of newer royalty companies have emerged, each with a different spin on how their approach is different than its competitors.
A superior, low-risk business model combining the best of the gold ETF and the operating company that has been widely acclaimed by investors – so where is the conundrum? To quote a famous investor: “In theory there is no difference between theory and practice – in practice there is.” In theory, royalty companies are a bullet-proof form of investing in gold, in practice things have turned out differently. Primarily, the difference in performance (measured over five years) from one company to another is significant, even though all of these companies have a broadly similar model. Sure, each has had its share of hits and a few misses but the divergence in performance appears outsized given the diversified portfolios of these companies. There are differences in commodity exposure but all are heavily exposed to gold and it is hard to argue that some measure of exposure to base metals and/or energy would make that much of a difference to performance.
Over the past five years Wheaton Precious Metals is up by [112]%, compared to [79]% for Triple Flag, [36]% for Osisko Gold Royalties, [26]% for Franco-Nevada, and [7]% for Royal Gold. Thus, it is hard to argue that the “senior” royalty companies have outperformed the “mid-tiers” or vice versa. In a recent presentation, Wheaton states that 99% of the company’s revenue is derived from precious metals, compared to 88% for Royal and 78% for Franco. But Franco has outperformed Royal, so it is difficult to argue that a lower exposure to precious metals accounts for the performance difference. Nor can the difference be explained by geopolitical exposure, because Osisko Gold Royalties has the highest exposure to Tier 1 jurisdictions, while Wheaton Precious has the lowest of the companies discussed here.