By Kishori Krishnan Exclusive To Gold Investing News
Gold miners are adding to their reserves. And fast. Given the strong metal prices, precious metal miners are using their cash flow from existing operations to pay for new acquisitions.
Especially Vancouver-based miners, who are now aggressively pursuing growth projects. Most have realized one thing - that the gold market does not need a weak US dollar to rise. For, the supply of gold itself has been declining for a decade now.
Reports indicate that we are at the lowest level of supply in at least 15 years. And this, for a commodity which has had a persistent growing demand.
Given the serious shortage of new gold discoveries and mines going into production, one interesting fact has emerged.
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Since 2000, the gold price has risen over $600 or so, yet the actual amount of gold produced has declined almost every year since then. That’s counter-intuitive, given that when a commodity price goes up, there should be more production.
This is telling us something important.
Moreover, the roughly 80 million ounces of annual production is just not enough to plug demand. And if one views gold as money, as many do, the inflation rate of gold is actually decelerating, while the inflation rate of fiat currency is accelerating.
This happens to be an interesting juxtaposition, between real money and paper currency. The real thing is becoming scarce while the supply of paper money is effectively limitless.
Even as key indices on both sides of the pond continue fluctuating, two conflicting forces seem to have emerged. One, gold moved up because of fear. Fear of another financial disaster and concern that the US dollar was vulnerable. And two, given the massive stimulus and quantitative easing that’s gone into the market, the world is looking at serious monetary inflation that will eventually result in price inflation.
And when that happens, what will happen to gold?
In a bid to stave off competition and intent on adding to its kitty, Toronto, Canada-based Kinross Gold Corporation,(TSE:K) the third-largest gold mining company in North America by reserves, announced that it was set to buy gold deposit and assets near its Kupol mine in Russia for $368 million, in a cash and stock deal.
The company said that it had proposed acquiring the Dvoinoye deposit and the Vodorazdelnaya property from two unnamed Russian companies that are “related to” Russian billionaire Roman Abravomich’s Millhouse LLC investment company. Roman Abramovich, Russia’s second-richest man, stands to gain about 1.5 per cent of Canada’s Kinross Gold Corp in exchange for the two gold deposits.
Both Dvoinoye and Vodorazdelnaya are located 90 kilometers north of Kinross’ Kupol operation.
In a statement, Kinross CEO Tye Burt said, “This acquisition is a valuable addition to a world-class asset, which will allow us to bring additional high-grade resources to existing facilities.”
Kinross, listed on the Toronto and the New York Stock Exchange, is set to pay $165 million in cash and issue 10.56 million Kinross shares, worth about $195 million.
The Dvoinoye deposit is located approximately 90 kilometres north of its Kupol mine in the remote and inhospitable Chukotka region in Eastern Russia.
Kinross plans to complete the necessary additional work to report a Canadian National Instrument 43-101 compliant resource estimate for Dvoinoye this year.
Kinross said the deposit could contain between 3.5 million and 3.9 million tonnes of ore, with a grade of between 17 and 19 grams per tonne and the gold miner plans to process ore from Dvoinoye at its existing Kupol mill.
Another western Victorian mine has receiving the thumbs up and the funds for further exploration activity.
Northgate Minerals, (NXG) which operates the Stawell gold mine, has said it will start exploring for gold in the centre of Stawell in the next two months.
The firm slowed production after promising discoveries last year so it could concentrate on building infrastructure. Stawell Gold Mine general manager Troy Cole says the mine’s life is about three to five years but could be extended if more gold is found.
“When you’ve got confidence in gold and you’ve got increased market conditions, well investors are more prepared then to invest in exploration activities. We put [in] more investment or increased our cost conditions through increased development or tunnelling … we had to put in more mine development to access mine reserves in the 2009 period than we had planned … so what that means is then we’re in a stronger position going into 2010 and longer mine life conditions for Stawell gold mines,” he said.
Gold Hawk has no debt, about 15 million in cash or the equivalent, and 15 per cent ownership of production at the Coricancha mine and processing facility in central Peru. It also has mining concessions northeast of Val D’Or, Que.
Current shareholders of Gold Hawk would end up with 40.9 per cent of Nuinsco’s stock and two seats at its board of directors. Nuinsco is offering 13.5 of its own shares, worth the equivalent of $1.62 in total. Nuinsco already owns nine per cent of Gold Hawk’s shares.
No gold? Try silver, copper
Given that there is not enough gold mines going around, several miners are looking at silver and copper.
Armed with an influx of money from near record-high bullion prices but facing a dearth of new gold prospects, Canada’s top gold miners are fighting tooth and nail for projects containing increasingly profitable metals like copper and silver.
As pure gold plays become scarce, the world’s largest gold producer maintains it is unperturbed. Barrick Gold Corp (TSX:ABX), and other large miners are said to be pursuing copper-gold projects and gold-silver projects.
Toronto-based Barrick’s deal to buy mining giant Xstrata PLC’s (LSE:XTA) 70 per cent share of a lucrative Chilean copper-gold project was scuttled by rival Goldcorp Inc (TSX:G), Canada’s second largest gold producer.
To secure the deal, Goldcorp had said it would supply New Gold (TSX:NGD), which owns 30 per cent of the project, with US$ 463 million to exercise their first right of refusal, and buy out Xstrata’s stake in the El Morro project, then sell Goldcorp a 70 per cent interest.
Goldcorp’s latest deal follows a winning offer - after an intense bidding war with Minera Penmont - for control of Canplats Resources Corp’s (TSXV:CPQ) Camino Rojo gold and silver discovery in Mexico.
In conclusion, one thing is clear: gold miners are on the hunt. They know that gold bulls are homing in on miners that are adding to their reserves.
So, even as some junior gold miners polish up their merger prospects, and others are making a desperate dash for cash, still others, are sitting pretty on a pile of moolah. Know any of these firms?