We often hear that large gold producers are usually not the best explorers. As such, when it comes time to replenish or grow their resource base, they must look to M&A.
With the recent offer from Goldcorp (GG) to buy Osisko (OTCPK:OSKFF) for $2.6 billion, we wanted to do the math and see how much gold the majors and mid-tiers actually have in the ground. In addition, we wanted to find how much of it was in undeveloped projects as opposed to current producing mines.
Two months ago, using data from the 2013 Gold Deposit Rankings, we completed a rough approximation of total gold for each major. However, this time we took it a step further and conducted a much more rigorous analysis. We looked at each major and mid-tier in depth, took into account joint ventures, and calculated what percentage of their gold is in undeveloped projects. Presumably, it is the companies that have nothing in the pipeline that will want to acquire more gold assets. This is especially true, given that the target companies for potential takeover offers are trading at some of their lowest valuations in years.
Note: because the 2013 Gold Deposit Rankings only deals with gold deposits above 1 million oz and with certain cutoff specifications, we haven't included small (<1 mm oz) or very low-grades (<0.3 g/t) in this analysis. In addition, to be classified as a major or mid-tier, a company had to have at least 20 million oz Au and have at least one mine in production.
To start at a high level, here is the breakdown between how many mines are owned by big producers vs. junior miners.
Majors and Mid-Tiers
Junior Miners (and Governments)
2.02 billion oz (54.3%)
1.70 billion oz (45.7%)
3.72 billion oz
# of deposits (1mm+)
Of the 2.02 billion oz Au that majors and mid-tiers have, it turns out 71.3% of projects in their portfolios are already in production.
1.44 billion oz
0.58 billion oz
This means that big producers have less than 30% of their total reserves and resources contained in undeveloped projects. On average, while each undeveloped project is slightly higher grade (1.27 g/t vs. 1.11 g/t), they contain less overall gold.
In fact, each average project in the pipeline has 38% less gold than those in production:
Average current mine
Average Project in Pipeline
# of deposits (1mm+)
Average Deposit Size
12.2 million oz
7.6 million oz
Projects in the pipeline are both fewer and smaller in size. However, what is really interesting is that so far we have not looked yet at development hurdles such as permitting or jurisdiction risk. Take the Pebble Project - this is the biggest gold project in the world (even though it is primarily copper). It holds 107 million oz of gold, and it is currently stalled by the EPA.
Of the 76 projects in the pipeline for majors and mid-tiers, how many of them will never go into production? How many of them will run into significant development challenges like Barrick's (ABX) Pascua Lama project? The math says that majors and mid-tiers have less than 30% of their gold in undeveloped projects, but this number could be even less based on these considerations.
That all said, let's look at what is available in the junior market - this is where majors and mid-tiers would go to fill their pipeline of projects.
4.4 million oz
There are many projects, but at a much lower grade and size. About 20% are in production and 80% are in development.
The question is now: which majors are going to be the most likely to acquire new projects? In this chart, I'll show the resources and reserves for each company. For a more detailed chart, see the infographic put together by our sister company using the same research.
Last, but not least, here are four other companies besides Goldcorp that we think may be looking to boost their asset base: Gold Fields (GFI), Newcrest (OTCPK:NCMGF), Newmont (NEM), and Kinross (KGC).
All of these companies have a high percentage of their resources in production and have engaged in M&A in the past.
- Cash: $69 million (June financials)
- Resources currently in production: 86%
- Resources in pipeline: 14%
- Avg. grade of pipeline: 0.86 g/t
- Cash: $1.2 billion
- Resources in production: 89%
- Resources in pipeline: 11%
- Avg. grade of pipeline: 0.63 g/t
- Cash: $1.5 billion
- Resources in production: 78%
- Resources in pipeline: 22%
- Avg. grade of pipeline: 1.02 g/t
- Cash: $950 million
- Resources in production: 66%
- Resources in pipeline: 34%
- Avg. grade of pipeline: 1.12 g/t
Note: The recent writedown of the Tasiast project may make Kinross wary of M&A for the time being.