South America: Ground Zero For Gold Mining

By Eric Fox | April 12, 2011 AAA

Many gold mining companies are counting on the successful development of numerous projects in South America to meet corporate goals on production growth. These projects will require billions in capital over the next few years.

TUTORIAL: Stock Basics

Goldcorp (NYSE:GG) will get only 5% of its estimated 2011 gold production from its one operating mine in South America. The company is currently working on developing the Cerro Negro mine in Argentina and expects first production in 2013. This project will yield an average of 550,000 ounces of gold annually during the first five years of operation.

Another project under development for Goldcorp is the El Morro mine in Chile, which holds reserves of gold and copper. The company is currently conducting a feasibility study on the property and expects results by the third quarter of 2011.

Barrick Gold (NYSE:ABX) will get 24% of its estimated 2011 gold production from mines in South America. This continent also accounts for 39% of the company's proved and probable reserves.

One project that the company has under development in South America is the Pascua Lama property, which straddles the border between Chile and Argentina. The company expects to spend between $3.3 billion and $3.6 billion in capital on this project, which will yield average annual gold production between 750,000 and 800,000 ounces during the first five years. Barrick Gold is targeting a production start up in 2013 from Pascua Lama.

Another project under development by Barrick Gold is Cerros Casale, located in Chile. The original capital estimate to develop this project was $4.2 billion, but recent statements from the company indicates that the cost will be as much as 25% higher. Barrick Gold owns 75% of Cerros Casale, with Kinross Gold (NYSE:KGC) owning the balance.

The company expects the project to produce average annual gold production during the first five years between 750,000 and 825,000 ounces. The project will also yield an average of 170 to 190 million pounds of copper annually during the first five years.

Barrick Gold is also exploring for future sites and in 2011 has allocated 15% of its exploration budget of $320 million to $340 million to look in South America.

Kinross Gold also has its own gold development projects in South America, and hopes to start up production from the Lobo Marte property in 2014. The company estimates that average annual gold production from this project will be 350,000 ounces during the life of the mine. Another development project in Ecuador is scheduled to start production in 2015 and will add another 410,000 ounces of gold production annually during the life of the mine.

Newmont Mining (NYSE:NEM) has allocated capital spending of $3.2 billion through 2017 for various gold projects in South America. The company expects that this level of spending will yield 1.3 million ounces of new annual production from four projects.

The Bottom Line
South America is a hot spot for gold exploration and development and virtually every major mining company has projects in various stages of development here. (For related reading, take a look at What Drives The Price Of Gold?)



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