The Real Cost Of Growth For Gold Miners

Dollar spent per oz of R&R = (Share Capital + Net Debt)/R&R

Costs Incurred Prior to Production ($/oz)

Company

Total Cost

(US$ Mi)

 $/oz

Year of 1st mine

Notes

Primero

482

169

2010

Acquired a producing mine for cash and shares in conjunction with IPO

NewGold

222

163

2008

Merger of 3 companies - 2 producing

Endeavour

656

125

2011

Consolidation of investments into a mining company

Teranga

342

113

2010

Acquired producing mine for shares in conjunction with IPO

B2Gold

258

86

2009

IPO in 2007, acquired advanced exploration projects from Anglo in Columbia

Oceana

634

74

2007

Acquired a producing mine, consolidated interests in conjunction with IPO

Alamos

114

38

2005

Optioned advanced project then merged with a partner to develop the mine

NewMarket

90

16

2009

Acquired advanced stage projects

Average

350

98

   

As expected the dollar cost per ounce for each of the companies is below the $200/oz albeit ranging widely from the lowest of  $16/oz to the highest of nearly $170/oz. 

Once in production, mining companies have to continuously replenish their Reserves and Recourses to maintain revenue levels over a long run.Developing R&R takes time and money therefore, to sustain long-term operations, mining companies have to continuously develop and/or acquire R&R.In a way they have to continuously grow to maintain their size and then they have to grow even more to scale up.

Organic Growth occurs through exploration and development of the company’s existing mineral properties. As we already showed the cost of organic growth is captured by the balance sheet and can be easily expressed in dollar value per oz of R&R.

Growth through M&A: Very often Mergers and/or Acquisitions do not involve exchange of cash and if they do, it would often be a combination of shares and cash.In scenarios with exchange of shares the dollar value cost measure is not as straightforward.  Take the following simple example:

Company A and Company B are both pursuing acquisition of the same existing asset. The acquisition would require the payment of 65 million in an all share transaction.

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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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