ANALYSIS of the data compiled in SNL Metals & Mining’s profiles of the world’s top 20 gold producers reveals that the major gold miners have significantly shifted their exploration focus over the past decade. The profiles form part of SNL’s Strategies for Gold Reserves Replacement study series of reports.

In the past decade leading top gold producers have shown a trend toward increased mine-site exploration at the expense of grassroots exploration. From 2006 to 2015 the share of the group’s total gold exploration budgets devoted to near-mine work rose from 44% to 54%, while the share allocated to greenfields programs decreased from 40% to 22%. In dollar terms, mine-site exploration’s lead over grassroots exploration jumped from a mere US$36 million in 2006 to US$470 million in 2015.

The increased focus on mine-site work in recent years has been due to the major producers spending more at and near their mines to replace or increase reserves depleted by mining and to develop new reserves more quickly at lower costs by using existing infrastructure.

Gold Fields is a vivid example of this trend, and has even admitted its lack of success in greenfields exploration and in taking projects from initial discovery through construction and into production.

Despite having spent roughly US$600 million on early-stage exploration since the founding of the modern Gold Fields in 1998, and despite the discovery of two multi-million ounce deposits, Gold Fields has not taken a single project from discovery to production, demonstrating how elusive greenfields exploration success can be.

As a result, the company has made a strategic shift from capital- and time-intensive exploration-led growth to a program of brownfields exploration and opportunistic, value-accretive acquisitions.

In late 2013, Gold Fields eliminated its Growth and International Projects division, and announced a drastic cutback of its greenfields exploration projects portfolio. Responsibility for exploration was devolved to the group’s operating regions, with a focus on near-mine activities. The company’s grassroots exploration budgets went from a high of more than US$92 million in 2012 to zero in 2015. By contrast, Gold Fields has been very successful with near-mine exploration, particularly at its orogenic-style ore bodies in Australia and at Damang in Ghana.

Declining discovery rates

As the shrinking grassroots spending suggests, over the past six years the number of new discoveries has fallen drastically compared with the first decade of the 2000s. While some of the decline can be ascribed to recent discoveries still being too small to be considered ‘significant’, the two-thirds drop in exploration budgets since 2012’s peak makes it extremely challenging for explorers to define new resources at their targets.

For example, Barrick Gold is credited with the only discovery identified for 2015 - the 5.5 million ounce Alturas deposit in Chile. Besides the discovery’s large size, a crucial factor in Alturas going from discovery hole to a defined, significant resource within the same year was the simple fact that Barrick has an ample early-stage exploration budget.

While the company has cut back its overall exploration spending as much as the rest of the industry, its grassroots budget has held comparatively steady, falling from US$73.5 million in 2012 to US$37 million in 2014, before rebounding slightly to US$41.5 million in 2015.

Over the past decade, AngloGold Ashanti was the biggest spender on gold exploration among companies in the study, with budgets totalling US$2.53 billion from 2006 to 2015. During the 2001-2015 period, the company is credited with shares in eight major discoveries hosting 73.3 million ounces of attributable gold in reserves, resources and past production - the largest amount of gold discovered by any of the profiled producers, and more than twice the amount discovered by its nearest competitor, Barrick.

With gold prices continuing to rise, SNL anticipates that, while companies will maintain their focus on existing operations, most will begin to reactivate modest early-stage efforts as part of their strategy to address the lack of new discoveries and offset looming supply shortages.

Gold is top explored commodity

DESPITE the year-on-year global exploration budget decline in 2015, gold’s US$3.94 billion allocation made it the top-explored commodity again in 2015, with 45% of the global total.

Evaluating capital financings by exchange shows that firms listed on the TSX Group accounted for 55% (US$544 million) of the total raised in July and August this year followed by ASX listed firms with 30% (US$291 million). The aggregate US$986.5 million raised was significantly higher than the US$324 million raised in the same period of 2015.

Drilling activity in Canada and the US accounted for 39% of all significant gold results announced between July 1 and September 8, with 29% hosted by the Asia-Pacific region.

The Africa and Canada-US regions had the highest in situ values for reported reserves and resources at primary gold projects at September 8, with values totalling US$1.48 trillion and US$1.26 trillion, respectively. For gold in non-gold primary projects, Asia-Pacific was the key contributor in terms of resource value, accounting for US$692 billion of the total non-gold primary in situ value.

Revenue, calculated by multiplying 2015 total gold production from primary mines with the 2015 average spot price, shows Asia-Pacific and Africa as most valuable gold regions, with revenues of US$20.22 billion and US$16.12 billion, respectively

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