Exploration in the mining industry is crucial to a company's continued success. As a company grows larger in size it becomes more and more difficult to not just expand and maintain production but replace reserves used up in production. Barrick Gold (ABX) has been moving forward on the exploration and development fronts proving that a large mining company can do more than just replenish production reserves.
The newest gold discoveries in Nevada, Red Hill and Goldrush, continue to show significant exploration potential. Red Hill and Goldrush are Carlin type discoveries coming from the land bank acquired in the takeover of Placer Dome located on the other side of a ridge from the Cortez mine.
The current size of the deposit is over 4 kilometers long with 1.3 million indicated and 5.7 inferred resources. These numbers only include the separate Red Hill and Goldrush deposits. Drill results completed after the release of the updated resource assessment indicate that the two deposits are linked and remain open in all directions.
While at the 2012 PDAC I was able to gain a better understanding of the discovery in the Core Shack and Investor Exchange areas. Needless to say I came away very impressed. This year Barrick will spend $64 million dollars to complete 142,000 metres of drilling to expand and prove up the resource and reserve potential.
As for feasibility and production decisions, it is impossible to say where a camp would be set up or if there are efficiencies that can be utilized with Cortez due to the deposit being open in all directions. One thing is for certain, Goldrush/Red Hill appears to be a deposit of significant size and scope.
In South America, Barrick is working to follow up on numerous areas within their 120 kilometer long land position in the El Indio Belt straddling the Chilean and Argentine borders. Barrick's land holdings in this area includes the Pascua-Lama deposit scheduled to come online in 2013 expected to produce roughly 800,000 ounces of gold and 35 million ounces of silver per year for the first five years.
Thirty-three project size areas have been identified within five main zones. 2012 will be spent determining which areas will be the target of a multi-year drilling program.
The Lumwana property in Zambia, acquired in the acquisition of Equinox Minerals Ltd, holds an estimated 4.9 billion pounds of copper in the reserves category with the Chimiwungo deposit being the primary focus during 2012. The mineralization at Chimiwungo extends 6 kilometers by 4 kilometers remaining open to the south and east. Drill results indicate a successful conversion from inferred to indicated in the resources category.
The future of Barrick looks extremely bright as Pueblo Viejo and Pascua Lama come online in the coming years. At $926 gold, both deposits were expected to yield $1.1 billion in cash flow. At $1,600 gold Pueblo Viejo will yield $800 million and Pascua Lama $1.65 billion in cash flow. As an added bonus, the new mines are located in the lower tier of the cash structure which will help keep a lid on total cash costs.
Costs continue to remain well hedged with the Australian dollar, the largest foreign currency exposure, being fully hedged by Barrick for 2012. Energy costs are well hedged and when combined with production from Barrick Energy a $10 change in WTIC only impacts cash costs by $1. The pricing of $1.25 billion in 10 year notes at 3.85% and $750 million in 30 year bonds at 5.25% shows the demand for quality credit from a strong mining company.
Investors looking at mining stocks should look not just at the strong fourth quarter earnings report for Barrick but the real key is in their ability to explore and develop new operations that will set the stage for growth in the latter part of the decade.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ABX over the next 72 hours.