Barrick Gold's High-Grade Reserves And Resources Give It An Edge Over Newmont Goldcorp

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About: Barrick Gold Corporation (GOLD), Includes: NEM
by: Geoffrey Caveney
Summary

The mergers of Barrick-Randgold and Newmont-Goldcorp have created two supersized senior gold mining companies in the world.

While they are similar in many respects, Barrick Gold has a clear advantage over Newmont Goldcorp in its high-grade gold reserves and resources.

Barrick's 75 million ounces of gold reserves have a high grade of almost 2 grams per tonne, and its 170 million ounces of resources have a grade of 1.7 g/t.

In contrast, even Newmont Goldcorp's 118 million ounces of reserves are barely over 1 gram per tonne, and its 193 million ounces of resources are under 1 gram per tonne.

This advantage will provide Barrick a competitive edge in a likely lower cost of production per ounce for years to come.

The mergers of Barrick Gold (GOLD) with Randgold and Newmont (NEM) with Goldcorp have created two supersized senior gold mining companies in the world:

(Source: finviz.com)

These two new merged companies appear to be similar in many respects:

NEM: $31.2 billion market cap

GOLD: $27.6 billion market cap

NEM: 7.22 million ounces of annual gold production

GOLD: 5.47 million ounces of annual gold production

NEM: $889 All-In Sustaining Cost (AISC)/ounce of production

GOLD: $825 All-In Sustaining Cost (AISC)/ounce of production

*Note: Barrick's production and cost figures are based on its Q1 2019 quarterly report of the merged company; Newmont Goldcorp's production and cost figures are estimated based on the latest available information for Newmont and Goldcorp separately.

NEM: 118.2 million ounces of Proven & Probable gold Mineral Reserves

GOLD: 75.3 million ounces of Proven & Probable gold Mineral Reserves

NEM: 192.8 million ounces of Measured & Indicated gold Mineral Resources

GOLD: 170.1 million ounces of Measured & Indicated gold Mineral Resources

*Note: The Mineral Reserves are included in these Mineral Resources figures.

High Grade: Barrick's 2 Grams/Tonne vs. Newmont's 1 Gram/Tonne

But the big difference in the two companies shows through in the grades of their gold reserves and resources:

Barrick's 75 million ounces of gold reserves have a high grade of almost 2 grams per tonne, technically 1.98 g/t to be exact. This is a result of combining the old Barrick's decently high-grade reserves with Randgold's even higher-grade reserves:

Old Barrick: 1.56 g/t of 62.3 million ounces of gold reserves

(Source: barrick.com)

Randgold: 4.0 g/t of 13 million ounces of gold reserves

(Source: barrick.com)

These reserves combine to total 1.98 g/t of 75.3 million ounces of gold reserves. This analysis reveals one of the significant values and benefits of the acquisition of Randgold for Barrick: its extremely high-grade reserves and resources.

Now it should be noted that these higher grades do not necessarily mean that all of these Randgold deposits will have a lower cost of production to mine. There are many other factors that figure into the ultimate total cost of production per ounce. But it is certainly better and more likely to keep costs manageable from a starting point of a 4 grams per tonne resource than from 1 gram per tonne.

The above tables also include the mineral resources and grades: the old Barrick had 1.40 g/t of 88.8 million ounces of Measured & Indicated gold Mineral Resources, exclusive of Mineral Reserves, while Randgold had 3.6 g/t of 19 million ounces of M&I resources, inclusive of reserves.

Adding together all of the total resources, Barrick's 62.3 million ounces of reserves, Barrick's 88.8 million additional ounces of exclusive resources, and Randgold's 19 million ounces of total resources, produces the following combined total:

1.70 grams per tonne of 170.1 million ounces of total gold Mineral Resources

Meanwhile, Newmont and Goldcorp have the following mineral reserves, resources, and grades:

(Source: newmontgoldcorp.com)

(Source: sedar.com)

(Source: goldcorp.com, 2018)

The final graphic is a screenshot of Goldcorp's reserves taken in late 2018, when it was still an independent company. At that time, I was researching reserves, not resources, so I did not record Goldcorp's grams per tonne grades of its other gold resources. I do not currently find this information on the Newmont Goldcorp website or documents.

But even with a very generous estimate that Goldcorp's resources have a grade as high or almost as high as its reserves (it is more likely that the resources have a grade 10% to 20% lower than the reserves), we may still estimate that Newmont Goldcorp's combined 192.8 million ounces of Measured & Indicated gold Mineral Resources have an overall grade below 1.00 gram per tonne, since that is the grade of Newmont's M&I resources, and even Goldcorp's reserves are a lower grade than that.

We have all of the information for Newmont's and Goldcorp's reserves: a combined 118.2 million ounces with an overall grade of 1.06 grams per tonne.

Conclusion

It is true that Newmont Goldcorp has significantly more ounces of gold reserves than the new Barrick Gold: 118 million ounces vs. 75 million ounces.

However, that is counterbalanced by the fact that even Barrick's 170 million ounces of gold resources have a much higher grade, 1.70 g/t, than Newmont Goldcorp's 118 million ounces of gold reserves at only 1.06 g/t.

And when it comes to total (Measured & Indicated) gold resources, Barrick is fairly close to Newmont Goldcorp (170 million vs. 193 million), and here again the advantage of a higher grade is huge, again with almost twice as much gold mineralization in each tonne of ore.

Once again, it should be noted that a higher grade of gold in a deposit, reserve, or resource is not a guarantee of a more economic or lower cost of production per ounce overall. There are many other factors that go into the total cost of production. But one would much rather begin a gold mine development project with a 2 grams per tonne grade than a 1 gram per tonne grade. It gives a company much more room to maneuver around the various unexpected additional costs and setbacks that are likely to arise over the course of development, construction, and production. In a world of unexpected events and unexpected costs, this is a significant advantage.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.