Precious Metals Production
Making the most of high commodity prices while inflation lasts
Having maintained production targets throughout 2020 and 2021 due to a strengthened position as a critical industry during the Covid-19 pandemic, Nevada-based mining majors have upheld that trend throughout 2022. Broader challenges linked to declining ore grades and the difficulty of finding new economical deposits after the “low-hanging fruits” were picked over Nevada’s 150-year mining history, however, sustain a trend of decreasing gold production in the state, from close to 7 million oz in 2005 to around 4.5 million in 2021, according to the Nevada Division of Minerals.
Despite post-pandemic recovery challenges and a gloomy inflationary picture driving rising production costs, the state remained amongst the most competitive places to produce gold worldwide. Newmont and Barrick Gold topped the chart for total reported gold production in H1 2022. The two heavyweights joined strengths in 2019 through an M&A to create Nevada Gold Mines (NGM), the largest gold-producing complex in the world, whose further scheduled access to high-grade ore planned in Q4 2022 suggests a strong future for Nevada’s main producer.
Strong leadership, forward-looking investments, and an increased accent put on leveraging technologies to increase gold recovery are likely to continue being the main drivers for success in the gold production space in the coming year. NGM appointed a new manager in October, while Kinross established the “Kinross Nevada Model” in 2022 to leverage synergies and expertise to streamline the decision-making at Bald Mountain and Round Mountain. Structural changes will be key as gold majors are currently battling a valuation decrease: the top 50 precious metals mining firms worldwide saw a US$48 billion market cap decrease between June 2020 and June 2022, according to Applied Analysis data.
Indeed, the excitement of a new metals super-cycle seen in 2021 appears to have waned. BMO Capitals reports drastic decreases in expansionary capital expenditure by the major mining firms in the past seven years, with their EBIDTA doubling over that period. Nevada gold and silver majors, with NGM, i-80, and Coeur Mining leading the charge, appear to have progressed on a different trend than their global peers. A high commodity price allowed for higher production cashflows and a strengthening of the balance sheet. With high capital reserves, Nevada majors were able to allocate liquidity towards exploration.
"Since the formation of the JV, we have produced over 10 million ounces of gold, along with increasing the reserves by almost 2 million ounces and resources by almost 8.5 million ounces."
Peter Richardson, Executive General Manager, Nevada Gold Mines (NGM)
Leveraging a strong commodity price to invest in the future
A high gold price offers opportunities for majors to consolidate assets, make technological investments and drive exploration programs. Majors worldwide continue to drive exploration investment, and Nevada has, again, led that trend in 2022.
Having produced over 10 million oz/Au since the JV formation, NGM leveraged its solid 10-year exploration plan to increase reserves by 2 million oz and resources by almost 8.5 million oz. NGM forecasts a slight increase in production in 2022 compared with 2021, and is looking at a 20% expansion plan underground at the Carlin mine site, which ought to be finalized in 2024. After five years, the firm finalized the construction of its third shaft at Turquoise Ridge and is actively drilling around the site to find potential extensions. In the Cortez Complex, the firm hopes to leverage its world-class Goldrush underground deposit, with a 20-year mine life. New executive general manager Peter Richardson, who replaced Greg Walker in October 2022, explained: “We have a robust 10-year plan and continue to explore and find more gold. High prices allow us to invest in our future.”
Barrick Gold’s president & CEO Mark Bristow acknowledged that the Goldrush underground project at the Cortex complex was key to helping drive the firm’s future growth. Touching upon the main milestones of the JV and Barrick’s outlook for Nevada, he stated: “NGM is Barrick’s value foundation. As far as the original objectives of the joint venture are concerned, I can safely say: Mission Accomplished! We have created a whole that is truly greater than the sum of its parts.”
He added that NGM’s total economic contribution to the state in 2021, including taxes, royalties, salaries, and procurement spending, amounted to over US$2.6 billion, with US$8.9 million spent on social investments alone.
In the Battle Mountain Trend, i-80’s Ruby Hill and Lone Tree operations are advancing at a pace likely to position the firm as the fastest-growing gold producer in Nevada. Having focused on exploration in 2022, the firm forecasts to be the second-largest producer in the state behind NGM by 2026, with a total production of 250-300.000 oz/y. The firm will prioritize restarting its processing facility at Lone Tree in 2023 and look beyond gold in the future. CEO Ewan Downie laid down his plan: “We are most excited about our new CRD (Carbonate Replacement Deposit) discovery immediately south of the pit (at Ruby Hill) where initial drilling is displaying some of the highest grades in CRD history. Our ambition is to diversify our production with the inclusion of lead, zinc, and silver.”
Coeur Mining, the operator of the largest primary silver mine in the “Silver State”, is no stranger to huge exploration and expansion investments. The firm spent US$240 million in exploration since 2017, including US$70 million in 2021. Adding a US$600 million investment at Rochester, the firm has in total seen a 100% increase in its silver resources. Mitchell Krebs, Coeur CEO, saw technological investments as the solution to offset the impact of higher production costs. These include high-pressure grinding roll technology at Rochester, the key to crushing high volumes of ore finely, and an on-demand ventilation system at the underground operations. He summarized “Regarding productivity and optimizing costs, we implement business improvement innovations to help offset the impact of higher costs.”
"Technologies are being developed to retrieve minerals from previously mined materials. Cyanco is taking the lead on developing new technology that will help mines turn 'waste ore' into a new source of minerals. ."
Steve Cochrane, US Sales Manager, Cyanco Technologies
Faced with declining ore grades and growing metal demand, the once-utopic prospect of going underground from an open-pit prospect is becoming ever more realistic, particularly thanks to new technologies. Kinross is exploring the potential of an underground mine at Round Mountain, with updates awaited in 2023. The firm is also leveraging drone technology to develop a pit at Bald Mountain – Little Bald Mountain - with extensive underground workings. Joseph Kemp, vice president, and general manager of the site explained: “Little Bald Mountain has a couple of large open stokes, which are hard to get into safely. Drones were able to map the underground area which allowed us to build a unique 3D model of what the underground development looked like.”
Sitting on the largest silver resource in North America, with over 450 million silver ounces in the M&I resources, Hycroft Mining CEO Diane Garrett has planned a drill program for the summer of 2023 to bring the asset back into production. “Silver is key for the solar industry and so many applications whether you have a gas or electric vehicle,” said Garret.
The operating environment ahead
Globally, geopolitics has increased as the second highest risk for mining producers according to EY. Due to Nevada’s geographical position and political stance, firms in the state were less affected than their international peers by the direct effects of the Ukraine war. Yet, geopolitical risk will increasingly become embedded within broader strategic planning. Tensions with China in August particularly highlighted how geopolitical risks lead to resource nationalism. As i-80 CEO Ewan Downie highlighted: “If we were to have a real conflict with China, we must realize that they have most of the metals and processing facilities, and governments had better start recognizing that.”
"Nevada is a large mining state, where we collaborate a lot with other peers. In our industry, we do not compete for market shares or for pricing of our commodities: pricing is fixed on the LME. It affords an environment of collaboration rather than competition."
Diane Garrett, CEO, Hycroft Mining
Looking ahead, government aid for economic recovery has caused levels of inflation and interest rates at heights unheard of in 40 years. Added to this, a shrinking talent pool, higher energy costs and global supply chain disruptions are all indicators of continuously high costs for mining producers throughout 2023. But this environment is one of the key opportunities. Gold knows no political attachment and has been for millennia a unique currency to revert to in troubled times. Turmoil calls for stability, which the metal offers, and as forecasted by Ewan Downie: “The need for gold as a financial backstop has never been more important than today.”
The coming months are likely to be marked by organic growth through development, exploration and asset consolidation for Nevada’s majors. Success will however come at a cost, requiring much higher capital to be put into projects at the exploration and development stage, and will only be obtained through strategic navigation of current exogenous challenges. Geopolitical tensions, raising interest rates and rising energy costs are forcing mining majors to come up with innovative ways to maintain two core objectives: shareholders’ margins and meeting increasing metal demand.
Image courtesy of Barrick