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02-12-2014, 10:51 PM
Gold investors warned the open-cut party is over
THE AUSTRALIAN DECEMBER 03, 2014 12:00AM
Barry FitzGerald
Resources Editor
Melbourne
Melbourne Mining Club
Northern Star’s Bill Beament, at the Melbourne Mining Club, calls on investors to reset their gauges to go underground. Picture: Stuart McEvoy Source: News Corp Australia
GOLD equity investors have been urged to reset valuation metrics to take account of the dramatic shift in the industry from one based on low-grade open-cut mines to one based on the more selective mining of higher-grade ores in underground mines.
The message from Bill Beament, managing director of the fast-grown 600,000-ounce-a-year gold producer Northern Star Resources, was delivered at the Melbourne Mining Club yesterday.
Mr Beament was speaking after a roller-coaster ride for the gold price in the previous 48 hours, with gold dropping at one stage to below $US1150 an ounce only to rebound to more than $US1200 an ounce. Northern Star’s share price was also on the big dipper, plunging to 96.6c on Monday only to rebound to $1.07 yesterday.
He said the $12 billion industry’s greater reliance on underground production was a necessity as the open-cut party that got going in the 1980s is all but over. And apart from anything else, there is a pressing need for the industry to go underground and step-up deep exploration for more gold resources as based on current gold prices and known reserves.
There will be only three operating mines left in Australia in 10 years. (Newcrest’s Cadia, Newmont’s Boddington and by-product production at BHP Billiton’s Olympic Dam.)
Mr Beament said the return of underground mines dominating Australian gold production would deliver greater resilience for producers in periods of gold price weakness because of the greater ability to selectively mine higher grade ores than is the case in open-cuts.
But he said a challenge for the industry was to get investors to adjust to the new “norm”, particularly around the contentious issue of mine life.
The open-pit era regularly delivered mine lives of seven to 10 years with the low-cost drilling of shallow ore bodies from the surface. Mr Beament said that as long as it lasted, it gave rise to the view that a project with fewer than seven years of proven reserves was barely bankable, let alone an attractive investment proposition. “In Australia, the investment community places a heavy emphasis on a company’s resources and reserves. Valuations are based in large part on these measures and overall market sentiment is driven to a large degree by mine life,’’ he said.
“But in the world of underground mining, in most cases it is simply not feasible to conduct the drilling programs needed to establish mineral inventories of this magnitude,’’ he said, adding that the cost of doing so meant it was also not in shareholders’ best interests.
“So this creates a conflict between what the investment community supposedly demands and what is truly in shareholders’ best interest,’’ he said.
Mr Beament called on investors to reset their gauges. “Proven mine lives of around three to five years will be the new norm. Most underground miners just can’t justify the cost of establishing a proven inventory beyond this. And the market is moving back to where it should be,’’ he said.
Northern Star has grown rapidly in recent years through acquisitions and now operates five underground mines.
THE AUSTRALIAN DECEMBER 03, 2014 12:00AM
Barry FitzGerald
Resources Editor
Melbourne
Melbourne Mining Club
Northern Star’s Bill Beament, at the Melbourne Mining Club, calls on investors to reset their gauges to go underground. Picture: Stuart McEvoy Source: News Corp Australia
GOLD equity investors have been urged to reset valuation metrics to take account of the dramatic shift in the industry from one based on low-grade open-cut mines to one based on the more selective mining of higher-grade ores in underground mines.
The message from Bill Beament, managing director of the fast-grown 600,000-ounce-a-year gold producer Northern Star Resources, was delivered at the Melbourne Mining Club yesterday.
Mr Beament was speaking after a roller-coaster ride for the gold price in the previous 48 hours, with gold dropping at one stage to below $US1150 an ounce only to rebound to more than $US1200 an ounce. Northern Star’s share price was also on the big dipper, plunging to 96.6c on Monday only to rebound to $1.07 yesterday.
He said the $12 billion industry’s greater reliance on underground production was a necessity as the open-cut party that got going in the 1980s is all but over. And apart from anything else, there is a pressing need for the industry to go underground and step-up deep exploration for more gold resources as based on current gold prices and known reserves.
There will be only three operating mines left in Australia in 10 years. (Newcrest’s Cadia, Newmont’s Boddington and by-product production at BHP Billiton’s Olympic Dam.)
Mr Beament said the return of underground mines dominating Australian gold production would deliver greater resilience for producers in periods of gold price weakness because of the greater ability to selectively mine higher grade ores than is the case in open-cuts.
But he said a challenge for the industry was to get investors to adjust to the new “norm”, particularly around the contentious issue of mine life.
The open-pit era regularly delivered mine lives of seven to 10 years with the low-cost drilling of shallow ore bodies from the surface. Mr Beament said that as long as it lasted, it gave rise to the view that a project with fewer than seven years of proven reserves was barely bankable, let alone an attractive investment proposition. “In Australia, the investment community places a heavy emphasis on a company’s resources and reserves. Valuations are based in large part on these measures and overall market sentiment is driven to a large degree by mine life,’’ he said.
“But in the world of underground mining, in most cases it is simply not feasible to conduct the drilling programs needed to establish mineral inventories of this magnitude,’’ he said, adding that the cost of doing so meant it was also not in shareholders’ best interests.
“So this creates a conflict between what the investment community supposedly demands and what is truly in shareholders’ best interest,’’ he said.
Mr Beament called on investors to reset their gauges. “Proven mine lives of around three to five years will be the new norm. Most underground miners just can’t justify the cost of establishing a proven inventory beyond this. And the market is moving back to where it should be,’’ he said.
Northern Star has grown rapidly in recent years through acquisitions and now operates five underground mines.