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Mix-Ansicht- Furioso for Juniors'o - Emerald, 29.09.2003, 13:48
Furioso for Juniors'o
-->:05 26Sep2003 RTRS-ANALYSIS-Gold giants turn to juniors for ounces
(Amounts in U.S. dollars unless noted)
By Nicole Mordant
VANCOUVER, British Columbia, Sept 26 (Reuters) - Mega gold mine mergers are dead. Long live junior miners.
So say the bosses of the world's biggest gold miners, describing how they expect to keep replacing millions of mined-out ounces of gold each year.
Relying on the teeming mass of tiny exploration companies to find big deposits is not new, but the urgency grows as the most powerful players see fewer and fewer opportunities to stock up their reserves through buying big-ounce rivals.
"It's a diminishing pond and we are all looking at the same pond," said Jay Taylor, chief executive of Placer Dome Inc. <PDG.TO>, speaking this week in Denver at an annual conference for gold industry heavyweights.
Following a spate of high-profile tie-ups, including Placer's purchase of Australia's AurionGold last year, the gold industry is headlined by six giants each removing between 3.5 and 7.5 million ounces of metal from the ground every year.
That means there are at least half a dozen major miners scouting for deposits of over three million ounces. And make that high-grade too, please.
Although bullion's surge this week to seven-year highs above $390 an ounce helped electrify the atmosphere at the Denver talk fest, it also gives vendors more power to push up selling prices especially when sexy opportunities are few.
Robert Buchan, Kinross' chief executive, says the days of mega acquisitions are over and the market will increasingly start focusing on miners' bottomline.
"The prime issue is earnings. The market has been very generous in accepting cashflow as its determination of value. But as metal prices go up, they will want to see earnings and dividends," he told Reuters in an interview.
Anything that hampers earnings, like high-priced purchases that push up break-even costs, will need to be explained to shareholders and the board.
JUNIORS RULE
Buchan says Kinross, whose 6.5 year average mine life is the lowest of the gold majors, is very focused on what the junior mining segment is discovering.
"It is where Kinross came from. We will be active, hopefully as a participant, but at least as watcher," he said. Kinross has in a few short years vaulted from the small league to world No. 7 gold producer, mostly through acquisitions.
Juniors can take a bow for finding some of the world's biggest deposits, including the Pierina deposit in Peru, Hemlo in Ontario and Bulyanhulu in Tanzania. Big league players have generally upped their own exploration budgets this year and next but the map is too big to be everywhere.
Taylor says Placer is"very dependent" on juniors to do grassroots exploration and initial drilling.
"When they realize that it's a bigger fish than they intended and they don't quite have the rod to get it in the boat, that's when you need a major to come land the thing."
Bill Cavalluzzo, investor relations manager at junior Rubicon Minerals Corp. <RMX.V>, says the gold price rise has strengthened the hand of juniors when negotiating with the big guns as many have been able to raise their own funds.
"Because they have the money, they may be better off going it alone. It's a philosophy of 'keep the best and farm out the rest'," Cavalluzzo said.
But Greg Wilkins, chief executive of Barrick Gold Corp. <ABX.TO>, argues that consolidation will continue as the higher gold price lures funds into the industry.
"As long as there is a lot of capital, people will do things," said Wilkins. With $1 billion in cash on Barrick's balance sheet, is Wilkins' comment possibly a hint of some future action?
((Reporting by Nicole Mordant, editing by Sue Thomas; Reuters Messaging: nicole.mordant.reuters.com@reuters.net; +604 664 7315))
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Friday, 26 September 2003 21:05:50RTRS [nN26251647] {EN}ENDS
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