The Real Cost Of Growth For Gold Miners

Three of the companies in our group have streaming agreements: New Gold and Teranga Gold entered into streams in 2013 while Primero purchased both of its mines with streams already attached.

In our calculation of Full Equity Dilution for all three companies we have included the upfront payment as well as the present value of lost future cash flows to stream (long term Au price used is US$ 1,100/oz).

Full Shareholder Dilution = Total Shares Outstanding + Net Debt Fully Converted into Shares + Present Value of Future Streaming/Royalty Obligations Fully Converted into Shares

The following table compares percentage growth in Reserves & Resources and percentage growth in gold production for each company relative to the percentage growth in Full Shareholder Dilution since the time each one commenced production: 

That table shows that:

  • Oceana has the lowest dilution since it commenced production. Production has nearly doubled and given the lack of increase in R&R it is most likely a result of the developing of pre-existing R&R. The marginal increase in R&R is due to a higher price of gold used for the calculation.
     
  • New Market’s production increase comes at a high dilution price (all in the early years of operations).The R&R growth is again attributable to increases in gold price used to calculate them.The company used the money to increase production from pre-existing R&R.
     
  • Endeavour’s increase in production is was also highly dilutive for shareholders; there is no significant increasing R&R. 
     
  • Primero’s and Teranga’s levels of dilution seem disproportionately high compared to the increase in R&R and production levels.In the case of Primero, the growth and dilution were a result of one acquisition. Similarly, Teranga’s increase in R&R is the result of one acquisition.The increases in production were attained in the early years as the producing mine was fully developed. It appears that both companies paid a high price for what they purchased. 
     
  • Newgold’s percentage increase in dilution was nearly the same as their increase in R&R and twice that of production. Newgold’s growth however was a product of mergers among equals rather than capturing upside potential.
     
  • Alamos and B2Gold have created the most value to their shareholders.Both increased R&R by nearly twice percentage increase in dilution and production by the same percentage as the dilution.  

* All currency figures in this paper are in USD

>> Read Part 2: The Real Cost Of Growth For Gold Miners

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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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