The Real Cost Of Growth For Gold Miners

In the Real Cost of Mining Gold we examine cost reporting in mining which can be made obscure by conventionally used non–GAAP measures. We standardized and reviewed the financial ratios of seven major mining companies historically and rated them based on cash adequacy and operational health.

In The Real Value of Gold in The Ground we studied 253 gold M&A transactions from the period 1990-2013 and applied Comparable Transactions Method to benchmark the value of an ounce of gold in the ground to be used in our project valuations.

In this series we turn our attention to growth in the gold mining sector, the most active of which, occurs at the Mid-Tier level. Mid-Tier companies emerge and grow as producers employing one or some combination of the following strategies:

  • Identify, explore and develop one or several properties all the way through to production
  • Acquire one or consolidate several advanced stage properties and develop through to production
  • Acquire an existing mine or consolidate several existing mines

Here we study the growth of eight Mid-Tier gold companies: B2Gold (TSX:BTO)(BTG), New Gold (TSX:NGD)(NGD), Endeavour Mining (TSX:EDV)(EXK), Oceana Gold (TSX:OGC)(OCANF), Primero Mining (TSX: P)(PPP), Newmarket Gold (TSX:NMI)(NMKTF) , Teranga Gold (TSX:TGZ)(TGCDF), and Alamos Gold (TSX:AGI)(AGI).


Growth in gold mining is reflected in:

  • Growth in Reserves & Resources (R&R) – leading to higher future revenue and higher share price (higher Return on investment (ROI) for equity holders)
  • Growth in Production – leads to higher current revenue and higher share price (higher ROI for equity holders)
  • Growth in Share Price = higher ROI for equity holders
  • Growth in Market Cap = reflects ROI for equity holders


Dollar spent per oz of gold in the ground ($/oz)*

Our previous research showed that pre-production stage Reserves & Resources (R&R) in the ground are valued at $90/oz R&R or less on the market and R&R in the ground owned by producing major miners are valued historically at around $200/oz..Considering the historic valuations it would follow that to get the bang for their buck, companies should spend less than $200/oz R&R in discovery and development to emerge as a Mid-Tier producers.

Let’s see what the eight studied companies have spent before they started producing:

Dollar spent per oz of gold R&R. To calculate the dollar amount spent to discover and develop one ounce of R&R we go to the companies’ annual financial statements for the respective year when production first commenced.To derive the total capital deployed for the development and/or acquisition of all existing R&R we sum Share Capital (the dollar value of all issued equity) and Net Debt (Total Liabilities – Total Current Assets). To obtain the cost per oz then we divide that sum to the total number of R&R that company has in the ground –

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Disclaimer Cipher Research Ltd. is not a licensed broker, broker dealer, market maker, investment banker, investment advisor, analyst, or underwriter and is not affiliated with any. There is no ...

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