* Gold miners say 'brownfields' key to finding more ore
* Analyst sees choppy gold prices in economic uncertainty
* Gold companies eyeing polymetalic deposits - Newmont
By Eduardo Garcia
LIMA, May 20 Leading gold miners say they see
"brownfield" exploration as a low-risk, cost-effective way to
boost output in the medium term, as global economic uncertainty
could make prices for the yellow metal wobble.
And, if prices stay where they are now, near all-time
highs, adding onto existing mines would be the quickest way to
lift production and profits.
Executives from Barrick (ABX.TO), Gold Fields (GFI.N) and
Newmont (NEM.N) told a biannual gold mining summit in Lima this
week that exploration near existing mines -- areas know as
brownfields -- is key in their plans to increase ore body.
"The best and the lowest risk expansion opportunities are
brownfields ... That's why we're spending a third of our
exploration budget on brownfields opportunities," Gold Fields
Chief Executive Nicholas Holland told Reuters in an interview.
Other major gold miners told the meeting in Lima that
near-mine exploration is also a centerpiece of their expansion
programs in the medium term because developing a new mine from
scratch typically takes more than eight years.
"An ounce found within 5 or 10 km (3 to 6 miles) from an
existing mine is worth a lot more than an ounce that is
remote," said Barrick Executive Vice President Peter Kinver.
About half of Barrick's exploration budget this year is
slotted for near-mine areas, Kinver said.
Holding up on riskier projects in "greenfield" areas, where
there is no mining activity, seems reasonable as many investors
do not yet see clear signs that the global economy is
rebounding from the downturn of the past two years.
"Often you have to establish basic infrastructure before
you even get the mine going. You have to be sure of the
economics before you press the bottom on those decisions,"
And, traditionally, gold prices have moved in sync with oil
prices, which would likely mean higher production costs for
gold miners if prices for the yellow metal rise.
"It is going to be pretty choppy. Prices never go up
indefinitely, I think there is some upside risk to gold
prices," said Bart Melek, an analyst with the BMO financial
"Our official forecast is $1,200 an ounce for 2011 ...
We're concerned about potential monetization, high debt levels
in Europe and North America," he added.
Fears of contagion from Greece's debt crisis have driven
gold to a record as investors ditched the euro and bought the
metal as a safe haven from volatile currencies and stocks.
But gold prices dropped more than 2 percent on Wednesday,
despite a tumbling euro, stirring concerns the precious metal
may be ripe for a correction. [ID:nLDE64I0SL]
COST SAVING, SYNERGIES
Another reason why gold miners are focusing on boosting
production at existing mines, or exploring near them, is
because developing mines in the same area is cost effective.
"We've been quite lucky to find stuff near mines (in Peru),
because the infrastructure is already there," said Kinver.
Buenaventura (BUEv.LM) (BVN.N), Peru's largest precious
metals miner, and Newmont, its partner, are considering a
tie-up with Chinese companies to jointly develop two major gold
deposits in Peru that are near each other. [ID:nN06137920]
Exploring for gold near the areas where other companies
have found world-class deposits is also seen as a safer bet.
Newmont Executive Vice President Guy Lansdown said that, as
of recently, gold miners are developing polymetalic deposits
because pure-gold deposits are hard to come by.
"Discoveries have reduced significantly over the last five
years ... It's just a mature industry. It's hard to replace
them (existing deposits). We're finding that we have to go into
very difficult environments," Lansdown said.
Also, gold miners cut their exploration budgets when gold
prices were low, which means that there are not many new
projects scheduled to come on stream in the short term.
"We're seeing some of the lead-lag effects of the deferred
and reduced exploration span in the past and, unfortunately, it
is going to take some time for us to catch up," said Holland.
"I think exploration will pick up again, but it is going to
take some years for us to see the impact of that, and gold
companies are going to have to start looking into new frontiers
to find new gold deposits," he said.
(Additional reporting by Teresa Cespedes and Patricia Velez;
Editing by Walter Bagley)