Seniors counting on exploration

Senior North American gold producers churning out over one million oz. of gold per year must find or acquire the equivalent of one Eskay Creek property every two years in order to sustain reserves.

By and large, senior producers aim to replace reserves through exploration rather than by acquiring them.

Placer Dome (TSE) has a $66.1-million exploration budget for 1992 with its main emphasis on gold and gold-copper projects in the Pacific Rim. But the company’s track record on the acquisition front is generally regarded as less than stellar as a result of the purchase and subsequent write-down of the Mt. Milligan project in north-central British Columbia.

This is in direct contrast to the company’s surprise discovery in 1991 at its 60% owned Cortez joint venture in Nevada. Exploratory drilling on the property outlined a new deposit with preliminary reserves totaling 11.3 million tons grading 0.24 oz. gold per ton using a 0.05 oz. cut-off. Placer believes that the potential for a significant increase in reserves is excellent. Preliminary estimates put potential future production from the project at over 250,000 oz. per year.

At a recent press conference, Placer President Anthony Petrina said it is of critical importance to build an inventory of potential new mines and that exploration is fundamental to the company’s overall success. The astronomical growth path of American Barrick Resources (TSE) has made it the darling of mining analysts world-wide. The company’s share price is a direct reflection of this, more than tripling from a low of $9.75 in 1989 to its recent high of over $34. This compares with the dismal performance of the Toronto Stock Exchange gold and silver index, currently dragging bottom at the 5,000-level, down from a high of 8,000 in 1990.

American Barrick’s gold production totalled 790,000 oz. during 1991, up from 596,000 oz. in 1990, with projections putting production for 1992 at about 1.3 million oz.

Plans to proceed with two new operations at the company’s massive Carlin properties in Nevada are expected to push annual production over two million oz. later this decade.

American Barrick recently signed an agreement with Newmont Gold (NYSE) for the joint development of the Deep and Lower Post ore bodies which contain an estimated nine million oz. of gold.

The company also plans to bring its Meikle deposit (formerly called Purple Vein) into production with its minable reserves of 7.2 million tons grading 0.63 oz. gold.

American Barrick’s proven and probable reserves jumped to 25.3 million oz. as of February 1992, up from 19.5 million oz. in 1990. The increase was primarily the result of the Meikle deposit and to a lesser extent, the Post deposit.

The company plans to continue to focus its exploration efforts around its existing operations, particularly those at Carlin, with a budget of about US$8 million. This compares with exploration expenditures of about US$10 million in 1991. The company’s operating agreement with Newmont includes the joint exploration of the two companies’ common property boundaries at Carlin, paving the way for additional discoveries.

Newmont Gold, Barrick’s neighbor at the Carlin properties, has a growth path which is no less spectacular. Production increased to 1.68 million oz. in 1990 and 1.58 million oz. in 1991 from the 500,000 oz.-per-year level in 1987. Newmont is also concentrating its exploration efforts on its Carlin properties. Its research into new technologies such as bioleaching may also lead to additional ore reserves. The company has a large resource of low grade sulphide material which could be brought into an “ore” category if economic bioleaching on a large scale can be perfected.

Recent estimates of Newmont Gold’s proven and probable reserves add up to about 18.9 million oz. The company’s gold production is expected to rise to 1.6 million oz. in 1992 and 1.7 million in 1993.

Homestake Mining (NYSE) realized a slight drop in gold production in 1991, with an output of about 1.05 million oz., compared with 1.18 million oz. in 1990.

The company has not released reserve figures for the end of 1991, although proven and probable reserves in 1990 were reported at 13.8 million oz., down from 14.7 million oz. in 1989.

Homestake is also focusing its exploration efforts around existing operations, particularly its North Homestake area, about a mile north of its underground operations in South Dakota.

The company’s exploration budget for 1992 is set at about US$25 million. Exploration expenditures in 1991 totaled US$39.4 million, but included US$11.7 million in write-down charges.

Although Homestake does not rule out acquisitions, Janet Bley, a spokesman for the company, noted that most vendors have unrealistic expectations which do not reflect the current price of gold.

In light of Homestake’s subsequent bid for International Corona (TSE), the company appears to see value in Corona, particularly in its interests in the low-cost Williams and David Bell mines in Ontario as well as the high-grade Eskay Creek deposit in northwestern British Columbia.