INSIGHT-For risk-wary gold miners, small is beautiful
By Susan Taylor
TORONTO, June 5 (Reuters) - Bigger isn't better for the world's gold miners, who are increasingly making "bite-sized" developments that carry less risk of budget disasters and fewer of the political and environmental disputes that have derailed mega-mines in recent years.
Newmont Mining is a prime example of how companies are responding to bleak industry conditions by building mines on a smaller scale than in the past, with the price of gold down almost 40 percent from its peak in 2011 and banks avoiding the sector.
The cautious approach will likely persist even if conditions improve, with miners increasingly teaming up on big, complex projects to share costs, expertise and risk, senior mining executives and industry watchers said.
"If there's going to be something go wrong, you'd rather it go wrong after you've spent $1 billion than $3 billion or $4 billion," said Goldcorp Inc Chief Executive Chuck Jeannes. Goldcorp, the world's most valuable gold miner by market capitalization, owns stakes in a number of joint-ventured assets such as the Alumbrera gold mine in Argentina and the Pueblo Viejo gold mine in the Dominican Republic.
The price of gold has fallen as concerns about inflation receded and the U.S. dollar rose against most major currencies. Gold is often used as a hedge against inflation, as prices typically rise when the dollar weakens.
Barrick Gold, the world's largest bullion producer, could be the poster child for problem-plagued mega-mines.
Its Pascua Lama project in the Andes was mothballed in 2013, bogged down by environmental issues, labor unrest, political opposition and development costs that ballooned to $8.5 billion.
"A phased approach to developing large, complex capital projects makes a lot of sense," said Barrick spokesman Andy Lloyd. "There is potential to mitigate development risks, reduce upfront capital requirements and expedite initial cash flows from the project, which could be used to fund future expansions." Continued...