World’s Gold Miners Stick Close to Home in Hunt for More Metal

Published: 19 September, 2016 15:10

The world’s biggest gold miners are taking a cautious approach in their hunt for bullion, spending more money to explore around existing mines rather than new territory in a strategy that may have short-term gains but risks future production growth.

Top producers are relying more than ever on small companies to do the heavy lifting of searching for new deposits and increasingly taking 10 to 20 percent equity stakes in the junior miners.

Exploring close to home is more cost efficient and improves the odds of discoveries. But the chances of making major new finds are limited, diminishing global gold output, which is expected to decline by nearly 9 percent in the next three years.

“It only makes sense to be looking in your own backyard first before exploring elsewhere,” said Paul Rollinson, Chief Executive of Kinross Gold, which spends about 90 percent of its exploration budget around existing sites.

“We focus on areas we already know, with existing infrastructure nearby, in jurisdictions we are comfortable with.”

Increased spending

The world’s 10 biggest gold miners are bumping up the share of exploration budgets earmarked for land around existing mines, or brownfield exploration, increasing the spending to 56 percent in 2015 from 45 percent in 2013.

In the meantime, they curbed spending on greenfield exploration in new territory to 21 percent from 25 percent of their budgets, data from SNL Metals & Mining, a unit of S&P Global Market Intelligence, shows.

“They say the best place to discover a mine is in the shadow of a headframe, atop mine shafts,” said Maria Smirnova, portfolio manager at Sprott Asset Management.

“The rate of failure in exploration is staggering, so it is always better to try and improve what you have already.”

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