Worth Their Weight in Gold? Potential Upside for Gold Stocks
Reserve replacement and beyond
The potential for future reserve replacement and growth is an important driver for gold miners. While mines have finite lives, the companies operating them don’t. To stay in the business, miners either have to find new mines to replace depleting mines or acquire mines from junior miners (GDXJ) engaged mainly in exploration.
Agnico-Offers significant upside
Among senior gold miners, Agnico Eagle Mines (AEM) has the most upside from potential exploration. The Amaruq exploration update from Agnico is due in 4Q15. This is expected to have a positive impact on resources. There are a number of internal project—including Kittila and Malartic—that can replace existing reserves and potentially provide an upside to reserves post-2018. While most gold miners are cutting down on exploration, Agnico’s exploration spending increased for 2015. Exploration at El Barqueno is also set to deliver a maiden resource in 2016.
Strong project pipeline
Goldcorp (GG) has a solid pipeline project with potential for the Eleonore and Cerro Negro mines to offer a short-term upside to production growth.
Newmont Mining (NEM) also has a strong production pipeline with 3% and 8% year-over-year growth expectations in 2016 and 2017, respectively, from 4.9 million ounces in 2015. Its Merian and Long Canyon projects are coming online, which should support production growth going forward.
Yamana Gold (AUY) is going through exploration at various mines. This resulted in higher grade asset extensions.
Downside ahead?
Investors were concerned about Kinross Gold’s (KGC) production profile as it gets worse over next three years as reserves fall and some of the mines are closed while others transition into a lower grade. While Kinross’s acquisition of assets from Barrick Gold (ABX) in the United States (DIA) in November should provide short-term production upside. Long-term upside would depend on the exploration results.
While Barrick Gold’s (ABX) production profile isn’t growing near-term due to asset divestments, it has several exploration projects in the pipeline and studies in progress. Still, the market expects it to have a declining to flat production profile from 2017 onwards.
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