When you google: “World’s best gold mines” (or any other type of mine) you typically get back a list of the world’s largest mines in terms of annual gold production. While this is no doubt a useful measure, it only captures one aspect of what makes a mining property desirable.
In this article series we’ve used our Mine Plan Radar Tool to seek to clarify what makes a mining property desirable, to investigate how the world’s various operations stack up, and to explore the implications for operational improvement and ownership strategies.
In this article (Part 1) we use the Mine Plan Radar to calculate an approximate NPV for over 40 gold mines for which the 2016 AISC, metal production and gold recovery rate were publicly available. In Part 2 we segment this landscape into four different types of mining operations, each based on a different ownership philosophy. Finally, in Part 3, we explore how the relative values of these different types of mines change when the gold price swings dramatically.
The chart below depicts a number of the world’s gold mining operations plotted according to their all-in sustaining cost per oz. (AISC) on the horizontal axis (from left-to-right) and their “discounted reserves” on the vertical axis (from top-to-bottom). (Each mine’s stated reserves are discounted, like a future cash flow, to represent their equivalent size as though all of their tonnage were being produced today; the exact calculations and data sources are included in the appendix.) The discounted reserve number represents the total ounces of metal the mine has left to produce while the difference between its AISC and the current metal price (taken to be USD $1,300 per oz.) represents the profit per ounce for all of this production. The multiple of these two values gives a rough approximation of the mine’s go-forward NPV based simply on its currently advertised reserves and costs.
Additionally, this NPV calculation is a simplification as it assumes that costs, production and recovery will remain at their 2016 values, that the understanding of the reserve itself will not evolve, and that there are no end-of-mine-life costs.
The axes are arranged such that, the greater the mine’s NPV, the closer it will be to the origin at the lower-left corner of the chart. For example, Barrick’s and Goldcorp’s Pueblo Viejo Mine, with discounted reserves of approximately 7MM ounces and an AISC of $470 per oz., provides an NPV of $5.8BN; the highest value property in the data set and the closest to the origin, just edging out Newcrest’s Cadia and Polyus’ Olimpiada.
In addition, three equivalency curves are plotted to indicate NPV thresholds of $0.5BN, $2BN and $4BN respectively. To illustrate, each of the Eleanore, Cerro Negro, Penasquito, Blagodatnoye, Kalgoorlie, Goldstrike, Boddington and Lihir Operations sit inside the $2BN curve and outside the $4BN curve, indicating that their NPV’s are between $2BN and $4BN.
The table below shows the top 10 mines from the data set according to their NPV calculation.
Now, while having a mine with a large NPV sounds appealing, its value is only meaningful relative to its cost of acquisition or the price for which it could be sold. If some other factors are driving the market price of a mine away from its apparent NPV, then judging which property is the “best” becomes far more complicated. In Part 2 of this article series we segment the radar above into four types of mining operations, each with its own apparent philosophy for value creation.
(Would you like to see another mine added to the radar? Email us at email@example.com)
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Appendix – Calculations, Data and References
The NPVs for these mines were calculated using the 2016 All-In Sustaining Cost (AISC), 2016 gold production rate, 2016 gold recovery percentage, and 2016 reserves – defined as proven reserves + probable reserves. To simplify, we also assumed that each mine would produce at its 2016 production rate up until all proven and probable reserves were exhausted, and assumed a discount rate of 10% per year.
The NPV was calculated with the following formulas:
Source for Anglogold Ashanti: http://www.anglogoldashanti.com/en/Media/Reports/Annual%20Reports/AGA-RR-2016.pdf
Source for Barrick Gold Reserves and Recovery %: http://www.barrick.com/files/quarterly-reports/2016/Barrick-2016-Reserves-Resources.pdf
Source for Barrick Gold AISC and Production: http://www.barrick.com/files/quarterly-reports/2016/Barrick-Mine-Stats-2016-Q4.pdf
Source for Gold Fields Recovery %: https://www.goldfields.co.za/pdf/reports/2016/mrr-2016.pdf
Source for Gold Fields Reserves, AISC and Production: https://www.goldfields.co.za/pdf/reports/2016/iar-2016.pdf
Source for Goldcorp Recovery %, AISC and Reserves: http://apps.indigotools.com/IR/IAC/?Ticker=G&Exchange=TSX#
Source for Newcrest Mining Ltd Reserves and AISC: http://www.newcrest.com.au/media/resource_reserves/2016/December_2016_Resources_and_Reserves_Statement.pdf
Source of Newcrest Mining Ltd Production and Recovery %: from 6/16 - http://www.newcrest.com.au/media/annual_reports/2016_Annual_Report.pdf
Source for Newmont Mining Reserves and AISC: http://s1.q4cdn.com/259923520/files/doc_financials/annual/2016/Newmont-2016-Annual-Report-Bookmarked-PDF-for-website.pdf
Source for Newmont Mining Production and Recovery %: http://s1.q4cdn.com/259923520/files/doc_financials/annual/2016/Newmont-2016-Annual-Report-Bookmarked-PDF-for-website.pdf
Source for Polyus AISC: http://polyus.com/en/media/press-releases/financial-results-for-the-year-2016/#!
Source for Polyus Reserves: http://polyus.com/en/operations/reserves_and_resources/
Source for Polyus Recovery %: http://polyus.com/en/investors/factsheet/
Source for Polyus Production: http://polyus.com/en/operations/
Source for Sibanye Gold: https://www.sibanyegold.co.za/investors/financial-reporting/annual-reports/2016 Download the Annual Financial Report and Annual Production reports for 2016
Source for Torex Gold AISC, Production, Recovery %: https://www.torexgold.com/news/torex-announces-2016-year-end-financial-and-operational-results
Source for Torex Gold Reserves: https://www.torexgold.com/projects/el-limon-guajes