By Nicole Mordant and Susan Taylor
VANCOUVER/TORONTO June 8 (Reuters) - For the first time in
five years, Barrick Gold ABX.TO and other bullion miners are
getting ready to expand, breaking from their monologue on
cutting costs and debt because of tumbling gold prices.
Backed by healthier balance sheets, a 17 percent rise in the
price of gold since January to $1,244 an ounce and new
investors, miners from Canada to Australia and South Africa are
studying ways to raise production.
At the world's biggest gold miner, growth was not a priority
in recent years, said Rob Krcmarov, Barrick's vice president of
exploration and growth, as the company sold assets to reduce its
$14 billion debt by 40 percent.
"Now some of our investors are starting to ask us: what is
next?," Krcmarov said. Barrick created a "growth committee" in
March to evaluate in-house projects, exploration opportunities
and acquisitions.
Early signs of activity include Kinross Gold's K.TO March
decision to expand its Mauritanian gold mine. In May, Goldcorp
paid C$520 million ($406.44 million) for a gold project in
Canada's Arctic.
"What the sector will see is smaller, bolt-on type projects,
brownfield expansions of existing mines. That's going to account
for the bulk of growth in new investment in the space," said
BB&T (NYSE:BBT) Capital Markets analyst Garrett Nelson.
Over the past half-decade, many mining companies have pared
debt and overhead to build cash flow, that can be used to boost
output, along with rising prices.
Such balance sheet improvements have attracted investors who
once again see promise in gold stocks, including billionaire
George Soros.
Shares in gold miners have soared this year with the
Philadelphia Gold and Silver Index .XAU up 98 percent versus a
paltry 3.5 percent increase in the S&P 500 Index .SPX .
Still, with lingering memories of the last bull run's
overpriced mine builds and acquisitions that stretched balance
sheets, producers are keeping watch on volatile gold prices
which peaked at $1,920 an ounce in September 2011.
"At this stage, it's largely talk and discussion and trying
to get people to recognize that they do have these options in
the portfolio," said Stephen Land, who manages Franklin
Templeton's Franklin Gold and Precious Metals Fund.
Barrick and others such as Australia's Evolution Mining
EVN.AX say growth means more than just adding production -
ounces must be profitable at a range of prices.
"We want to be a company that prospers through the cycle and
not just when the gold price is going up," said Evolution
Executive Chairman Jake Klein.
Gold prices began dropping sharply from late 2012 as
concerns about global inflation fell, reducing bullion's value
as a hedge against rising prices.
SLIM PICKINGS
Funding for exploration fell with gold prices, meaning there
are "slim pickings" when it comes to acquisitions, said David
Garofalo, the Chief Executive of Canada's Goldcorp G.TO .
"The reality is, the best bang for the buck seems to be on
the internal opportunities," he said.
One such case is Newcrest Mining NCM.AX , Australia's
biggest gold miner.
Newcrest has its hands full with expansion plans at existing
assets, and while the company is "not blind" to larger scale M&A
opportunities, it is "not a major focus" right now, said CEO
Sandeep Biswas.
By focusing on early-stage projects, Canada's Agnico Eagle
Mines AEM.TO , which doubled 2015 exploration spending from the
previous year, can reap more profit from its investments, CEO
Sean Boyd said.
Still, securing new supplies is critical: after seven years
of gains, gold production will fall for the next three years,
Thomson Reuters GFMS data shows.
Some miners will be tempted to make acquisitions.
Advanced projects and newly-built mines that can supply
"instant ounces" are likely to be popular targets, said Cassels
Brock & Blackwell mining lawyer Paul Stein.
Evolution and South Africa's Sibanye Gold SGLJ.J have said
they might be looking to buy.
($1 = 1.2794 Canadian dollars)
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