Industry Trend Analysis - Gold Mines & Projects: Asia Dominates - MAR 2017

BMI View: Following the recent addition of gold projects to our Global Mine Project Database, we analyse the main findings behind the data. Overall, despite strong project pipelines, a number of projects remain stalled as gold miners will continue to prioritise cutting costs and refocusing on core assets following a multi-year gold price downtrend. Gold miners will increasingly invest in Asia, as rising demand from China attracts new projects and improving prices encourage development .

Following the recent addition of gold projects to our Global Mine Project Database, we analyse in this article the main findings behind the data. This data is comprised of over 400 gold mines and projects with a production capacity of at least 50 thousand ounces (koz) of gold per annum. We caution that the data skews towards transparent markets with more available information.

Globally, gold miners will continue to prioritise cutting costs and refocusing on core assets to better withstand market volatility following a multi-year gold price downtrend. As such, despite strong project pipelines in key gold-producing countries, a number of projects remain stalled. In January, the CEO at top miner Goldcorp announced partnering with other senior miners to develop projects to be a key strategy in an effort to reduce costs and risks. In 2015, the firm combined the USD3.9bn El Morro project with Teck Resources' USD4.5bn Relincho project into the NuevaUnion project in Chile, lowering capital expenditures to USD3.5bn. Furthermore, increasingly stringent environmental regulations in countries ranging from Canada and Chile to the Philippines and China will prompt miners to invest in green technology, reducing both costs and environmental impacts ( see ' Canada Gold Go Green ' , January 10).

Project Pipelines Strong But Slow
Number Of Operational Gold Mines, New Projects & Highest Project Capital Expenditure (USDbn) By Region
Note: Some projects include gold-copper deposits. Source: BMI

Asia will remain the dominant location for gold mining, with the continent accounting for approximately one-third of operational mines and new projects. This share is consistent with our gold mining production forecasts, which estimate that China and Australia alone will account for 15.8% and 12.0%, respectively, of global output in 2017. The largest new gold project in terms of value will be Australia-based Indophil Resources' (majority-owned by Filipino firm Alcantara) USD5.9bn Tampakan copper-gold deposit in the Philippines, previously owned by top miner Glencore. However, tightening environmental regulations in the country will likely keep the project suspended. Other major gold projects in Asia include Newcrest Mining and Harmony Gold's jointly-owned Wafi-Golpu copper-gold deposit in Papua New Guinea and St. Augustine Copper & Gold's King-King copper-gold deposit in the Philippines.

New Projects Following Demand
Gold Mines & Projects By Region (%)
Note: Accurate as of January 2017. Source: BMI Mines Database

The improving gold price and rising Asian demand will encourage project development in the region. We expect the medium-term uptrend in gold prices to persist and forecast an average of USD1,300/oz in 2017, supported by a less hawkish US Fed outlook and a high degree of global economic policy uncertainty bolstering the attractiveness of gold as a safe haven asset ( see 'Gold: Optimism Unwound, Uptrend Resuming', January 19). Further, in December 2016, according to the Swiss Customs Administration, China imported 158 tonnes of gold from Switzerland, more than any other month in over 2 years. Although Indian gold imports fell to approximately 500 tonnes in 2016, the country will remain the second largest gold consumer.

Rising Prices To Spur Deals, Project Development
Global Gold Price (USD/oz)
f = BMI forecast. Source: BMI, Bloomberg

Chinese Companies Gaining Market Share

The improving outlook for gold prices will support mergers and acquisitions (M&A) and investment in the industry as overleveraged major firms continue to offload assets in an effort to narrow portfolios. Chinese firms in particular will drive deals, with the Asia Pacific region accounting for 44.7% of global gold mining M&A in 2016. Key deals in 2016 included state-owned China National Gold Group's USD300mn purchase of the Jinfeng gold mine from Eldorado Gold and Indonesian firm PT Amman Mineral International's USD1.3bn purchase of Newmont Mining's Indonesian assets, including the country's second largest copper-gold mine, Batu Hijau.

Asia Gold Deals Heating Up
Gold Mining Merger, Acquisition & Investment Volume (USDbn) & Deal Count
Source: Bloomberg

As the Chinese government continues to push for consolidation in the mining industry, large-scale gold miners stand to benefit as higher-cost producers are edged out of the market. In particular, China National Gold, Shandong Gold Group and Zijin Mining will prioritise investing in assets abroad and increasing market share. For example, the former two firms have both reportedly bid on Glencore's Vasilkovskoye gold mine in Kazakhstan for an estimated USD2.0bn. As of January 31 2017, Glencore has not decided whether or not to sell the asset; however, Chinese companies will remain committed to improving their gold mining portfolios as domestic ore grades decline.

Largest Global Gold Projects By Capex
Country Mine Company Capex (USDmn) Notes
Note: Some projects include gold-copper deposits. Source: BMI Mines Database, Company announcements
Philippines Tampakan Indophil Resources 5,900 Resources - 18Moz
Chile Caspiche Exeter Resource 4,800 Measured and Indicated Resources - 1,403.6mnt
Chile NuevaUnion Teck Resources (50%) GoldCorp (50%) 3,500 Prefeasibility study to start in H217; expected production 315koz/yr of gold, over the first decade
Peru El Arco Southern Copper Corporation 3,000 Estimated gold production - 105koz/yr; Currently in advanced exploration stage
Papua New Guinea Wafi-Golpu Newcrest Mining (50%) Harmony Gold (50%) 2,300 Reserves - 6.2Moz
Philippines King-King Nationwide Development Corporation - NADECOR (60%)St. Augustine Gold and Copper (40%) 2,040 Commercial production expected 2017; Average production - 236.2koz/yr
Canada Harper Creek Yellowhead Mining Inc 1,093 Proved and Probable Reserves - 0.7Moz
Peru Galeno Minerals and Metals Group (60%) Jiangxi Copper (40%) 967 Expected production 82koz/yr of gold over a 22-year mine life
Ecuador Fruta del Norte Lundin Gold 669 Mineral Reserves - 4.82Moz, Targeted start of construction in mid-2017 with production by 2020
Chile Inca De Oro PanAust (66.8%) Codelco (33.2%) 600 Resources - 46mnt; The remaining 5.6% is held by Independent private company
Canada Cochenour GoldCorp 588 Advanced exploration phase; Inferred Resources - 2.2Moz
Philippines Taysan Crazy Horse Resources 502 Resources - 2.74Moz
United States Back Forty Aquila Resources 407 Measured Resources - 0.5Moz
United States Haile Oceanagold Corp 380 Reserves - 2.02Moz; Commercial production expected in early 2017; Estimated mine life - 2030
Brazil Chapada Yamana Gold 178 Proved Reserves - 263.9mnt
Argentina Cerro Moro Yamana Gold 150 Probable Reserves - 2mnt
Papua New Guinea Frieda River PanAust Ltd (80%) Highlands Pacific (20%) 122 Still undergoing feasibility studies; Horse-Ivaal-Trukai deposit (part of project) holds a total resource of 2.1bn tonnes
South Africa Tjate Jubilee Platinum (63%) Sebata Kgomo Consortium (37%) 100 Indicated and Inferred Resources - 22.3Moz
Australia Mount Morgan Carbine Resources (75%) 63.9 Indicated and Inferred Resources - 850koz
Burkina Faso Tanlouka (Mankarga 5 deposit) West African Resources 44 Estimated average annual gold production of 59.4Koz for first 3 years