Falling gold price, rising costs squeeze state’s miners
January 2, 2014
The pressures that affected large and small mining firms operating in Nevada in 2013 are expected to continue squeezing the bottom line in 2014.
The tumbling price of gold — it hovered under $1,250 an ounce for much of December after entering the year at nearly $1,700 an ounce — coupled with rising production costs have mining firms scrambling to cut costs in an effort to bolster flagging profits.
Joel Lenz, general manager of the Phoenix mine for Newmont Mining Corp., said 2013 was a challenging year for the entire mining sector.
"We don't control the price of the product we produce," Lenz said. "The most difficult challenge we faced was the declining metals price environment — it goes to the top line, and that top line is under stress."
Gone is the attitude of aggressive expansion of the past few years. Mining companies scaled back on exploration and development efforts and shifted focus on squeezing maximum profit from current assets.
Take Barrick Gold of North America as a prime example: Its 2012 North America exploration budget was $188 million, but in 2013 that number is projected to be $94 million, said Director of Communications Lou Schack. The bulk of Barrick's Nevada exploration budget is being spent advancing its Gold Rush property in Eureka County. Barrick currently has more than 100 drillers working in the area.
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Throughout the state, mine plans were revised to reduce capital expenditures and protect profits, and that philosophy will dominate mine site operations and planning in 2014.
"Because of the change in the price environment a lot of mining companies — and Newmont is no exception — had to come up with changes in the plan that were less focused on growth and more focused on viable business plans through the price cycle," Lenz said. "That really is the big issue."
Gold still is at a historically high price, Schack said, but the cost of producing an ounce of gold and expanding mine infrastructure has risen over the early part of the decade. Large firms such as Barrick and Newmont, with multiple gold mines, will fare better in the new mining landscape than small exploration firms or junior mining companies with just one single asset.
"We are fortunate to have a pretty good cash flow," Schack said. "Even though margins have come way down we still are generating a fair amount of cash so we can sustain things and ride out this tough market. When you look at some junior companies that don't have operating assets to generate cash it's really hard to make it."
Investors and market analysts will keep close watch on Reno's Allied Nevada Gold Corp. in the coming year. Allied Nevada operates the Hycroft Mine near Winnemucca. The company headquartered at South Meadows retreated from ambitious expansion plans at its mine near Winnemucca. Its share price tumbled from $30 in January to $3 in December. The firm is looking to raise about $25 million in cash through the sale of a large shovel.
Despite the rocky landscape, Barrick and Newmont both have large construction and expansion projects under way. Newmont is making good headway on a massive project to build an additional ventilation and access shaft at its Leeville underground mine. The completed shaft will be used to convey water, compressed air, power, communications, fuel and lubricants to the underground mining operations. Sinking of the shaft is expected to begin in January and be completed in 2015.
Executives at Newmont's largest development project, the Long Canyon mine in the Pequop Mountains east of Wells, will continue to work toward permitting during 2014. Exploration is limited to expanding the Long Canyon resource estimate and for drilling in close proximity to existing mines to replace or grow the reserve base, Lenz said.
Barrick's largest construction project in 2014 is its $400 million expansion of the autoclave at the Goldstrike property. The expansion will extend the life of the autoclave and allow Barrick to treat different ores and enter into toll milling agreements with other regional mining firms.
Barrick also is completing a large infrastructure addition to underground mine at Cortez to allow for expansion.
"Cortez by far is the largest producing mine for Barrick, with a large array of mining and processing options," Schack said. "It has grown into quite a large underground operation as well as the open pit above it."