Recent patterns in the pricing of listed gold stocks around the world show a firm trend where investors tend to favour potential acquisition targets, typically companies with great discoveries but lacking either the balance sheet or full access to capital required to develop appropriate mines. Depending on the potential target, valuations vary widely; 20 of the most likely targets show numbers where proven gold in the ground is valued from as little as $3.11/oz to $ 152.69/oz.
At the same time, major mining stocks have been relatively quiet on the acquisitions front, even over the past few months when valuations for smaller mining stocks, in particular, were often decimated. Looking back, Tier I gold digger Kinross has been among the most active; earlier this year, it spent $250 million buying Lobo-Marte in Chile; during 2008 Kinross completed a C$1.2 billion merger with Aurelian, and, in 2006, completed a $3.1 billion merger with Bema.
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Newmont, also a Tier I gold stock, this year bought, for more than $1 billion, the 33% it did not own in Australia's Boddington gold mine, which boasts 20 million ounces of proven and probable gold, and is close to start-up. During 2008, Newmont took its stake in Gabriel up to just under 20%. During 2007, Newmont acquired Miramar for C$1.5 billion.
Among other major gold transactions, Tier I member Goldcorp in 2008 acquired Gold Eagle in a C$1.5 billion transaction, and Australia's Lihir, likewise a Tier I member, made a friendly $1 billion acquisition of Equigold. Kinross most recently bought a stake in beleaguered diamond stock Harry Winston, possibly indicating either that diamond stocks are an absolute bargain, or that nothing is wildly attractive in the far broader gold universe.
For investors who dream of elephant country, most of the world's top 10 gold deposits are well accounted for. Starting from the top, the Witwatersrand Basin has been mined by dozens of companies for more than a century; Muruntau (which also contains silver) is state-owned and run; then there is Grasberg (primarily copper, owned mainly by Freeport-McMoRan), Olympic Dam (copper, BHP Billiton), Pebble (copper, Northern Dynasty, and Anglo American), Natalka (Polyus), Sukhoi Log (Polyus, maybe), Oyu Tolgoi (copper, Ivanhoe Mines, and Rio Tinto), Reko Diq (copper, Barrick, the world's biggest gold stock), and Lihir.
Leaving aside complete company takeovers, only two of these assets, Pebble and Oyu Tolgoi, are readily available, so to speak, and both projects have senior miners as partners, as indicated: Northern Dynasty/Anglo American and Ivanhoe Mines/Rio Tinto. Even if the two senior miners are the only likely predators, investors believe the story; Northern Dynasty and Ivanhoe Mines both rank as among the best performing stocks in the world over the past while.
Assuming Ivanhoe Mines ends up with half of Oyu Tolgoi – something not yet settled with the Mongolian government – that would be an attributable 15.8 million ounces of gold. Based on Ivanhoe's market value of $2.4 billion, that means that the Oyu Tolgoi gold ounces attributable to Ivanhoe Mines are valued at some $152.69 each. This is very high indeed; Northern Dynasty's gigantic 47.1 million attributable ounces of gold at Pebble are valued at a mere $12.10/oz. Both Oyu Tolgoi and Pebble rank as primarily potential copper mines.
Compare these numbers with Western Copper, which holds 8.0 million ounces of gold at its Casino project in the Yukon; the deposit also holds economic copper, silver and molybdenum. While the project as a whole is more advanced than either Oyu Tolgoi and Pebble, the market values Western Copper's gold ounces at Casino at a mere $3.22 each. The 30 million ounces of gold held by San Anton Resource at Mexico's San Anton Property (Goldcorp, 34%), which hosts the near-surface Cerro del Gallo gold-silver-copper deposit, are valued by the market at $8.31 each, compared to $26.70/oz for the 6.7 million ounces of gold (some of it attributable from silver) held by Minefinders, also in Mexico. Again, the 13.8 million ounces of gold held at the Volcan gold project by Andina Minerals in Chile's Region III are valued at $6.56 each.
Taseko's Prosperity, one of Canada's biggest undeveloped copper-gold deposits, holds 13.3 million ounces of gold valued at $15.74 each, and Detour Gold's property on the Abitibi greenstone belt in Ontario holds 13.2 million ounces valued at $29.64 each; yet Osisko's 8.9 million ounces at its Malarctic project in Quebec scores a rating of $121.33/oz. Northgate holds 6.9 million ounces of gold (plus copper) at its Kemess North project in British Columbia and scores a rating of $46.77/oz
Gold Reserve, which has been in something of a fray with Rusoro Mining, holds 11.8 million ounces of gold at its Brisas project in Venezuela, with a value of just $3.11 each. Crystallex, also in Venezuela, holds a magnificent 16.9 million ounces of gold at its La Cristinas project, valued at a very conservative $3.74 each. While permitting complications and delays inevitably rank high as concerns in developed countries, political and people issues often come to the fore in developing nations.
Moto Goldmines and Banro, both with significantly endowed gold projects in the Democratic Republic of the Congo, show valuations of $25.34/oz and $8.50/oz, respectively, while Greystar's great 15.0 million ounce Angostura discovery in Colombia scores a valuation of $9.84/oz. Centamin Egypt, which is close to production in an ancient country, holds 12.3 million ounces with a relatively lofty valuation of $64.29/oz, yet Great Basin Gold, which is also close to production in SA, holds 13.3 million ounces valued at less than half the number for Centamin Egypt. The 5.4 million ounces held by Guyana Goldfields at its Aurora project score a rating of $26.70/oz.
Novagold, which holds 14.7 million ounces, its 50% attributable number for Alaska's huge Donlin Creek deposit, shows a valuation of $34.91/oz. The partner at Donlin Creek is Barrick, which agreed with Novagold as early as August 2007 to settle disputes over the property and advance it on a 50:50 basis. Over the past 12 months, Novagold's market value collapsed from $1.47 billion to a paltry $70 million. The stock price has since risen by 635% from the bottom. For some rough guidance, consider that Newmont reckons that capital costs (on a 100% basis) at Boddington, which is set to produce around 1 million ounces of gold a year, will total between $2.6 billion and $2.9 billion. Striking it rich in elephant country may be one thing, but having gorilla money to build it is another thing completely.
