Denver Forum rides bullish bullion

Denver, Colo. — On rising bullion prices and bullish market sentiment, the 2007 Denver Gold Forum saw strong numbers, with several hundred industry and financial executives attending the late September event. But overshadowing some of the glee was a cloud of geopolitical uncertainty, with plenty of stories about permitting issues, escalating costs and production-reserve shortfalls.

Presentations by several junior explorers reviewed some of the challenges the sector is facing, including one by Gabriel Resources (GBU-T, GBRRF-O).

Chief financial officer Richard Young discussed the permitting setbacks and disappointments the company has experienced at its Rosia Montana gold project, in western Romania.

Young said that Gabriel believes Hungarian opposition to the project is directly influencing Romania’s minister of environment, who recently stopped project permitting. Gabriel sees the action as “illegal,” and a manoeuvre by the minister to get Gabriel to “sue him.” While not tipping his hand on how Gabriel will proceed, Young said the company is pursuing a couple of avenues, political and legal.

Highlighting the US$2.5 billion in economic benefit Rosia Montana would bring to the country, plus the thousands of jobs that would be created in a region that the government now classifies as a “disadvantaged zone,” Young said the company also plans to remediate past environmental damage in the area as part of its mining plan.

Aspiring Eastern European developer Dundee Precious Metals (DPM-T, DPMLF-O) reviewed permitting challenges it’s facing in Bulgaria, while awaiting environment ministry approval of its Krumovgrad gold project. Company president and CEO Jonathan Goodman expressed frustration with the delay and discussed taking the minister to court for disregarding the rule of law in Bulgaria.

Aurelian Resources (ARU-T, AUREF-O) president and CEO Patrick Anderson updated the audience on the company’s successes at the FDN gold discovery, in southeastern Ecuador. He also pointed out that although perceived political risks have kept its stock price somewhat grounded, revisions to Ecuadorian mineral policy are in the works and anticipated by mid-2008.

Anderson believes government officials will push for increased mineral development, with strong environmental and social safeguards ensured. Mineral policies from Chile and Peru could provide a model for Ecuador’s mining framework.

With 52,000 metres of drilling completed on FDN, Aurelian expects an inferred resource estimate this fall, along with some data on metallurgy. Of the six drill rigs turning on-site, five are on FDN, while one is allocated to regional exploration.

Following Glencairn Gold’s (GGG-T, GLE-X) recent geotechnical catastrophe at the Bellavista mine, in Costa Rica, company president and CEO Peter Tagliamonte announced the company would refocus on Nicaragua, where it operates the Limon mine and is moving its La Libertad operation towards production.

Among mid-tier producers, Yamana Gold (YRI-T, AUY-N, YAU-L) and Meridian Gold (MNG-T, MDG-N) stole the show, announcing a merger agreement following Yamana’s boosted takeover bid.

Yamana also has a related merger planned with Northern Orion Resources (NNO-T, NTO-X); combined pro forma production for the new Yamana is about 1 million oz. gold this year, 1.2 million oz. in 2008 and more than 1.5 million oz. gold by 2009.

During Northgate Minerals’ (ngx-t, nxg-x) presentation, company president and CEO Ken Stowe could not hide his disappointment in a recent review panel recommendation that the company’s Kemess North project not proceed to development. He intimated that cash accumulated for the planned Kemess North development would be reallocated toward other projects or acquisitions.

“It (the panel’s recommendation) has made our life a lot simpler,” said Stowe, suggesting the company will not be committing cash towards Kemess North.

When asked if the company would challenge the recommendation of the environmental panel, Stowe said, “we are not going to spend millions of dollars of our shareholders’ money fighting the unwinnable fight.”

Stowe emphasized the growth potential being realized at Northgate’s Young Davidson project, in northeastern Ontario, where $27 million is earmarked for exploration this year. The company expects to see the resource base rise to the 3-million-oz. gold level from 2.1 million oz., with hopes to move the project into production by 2010, when Kemess South reserves will be exhausted.

Eldorado Gold (ELD-T, EGO-X) president and CEO Paul Wright talked about the recent court-ordered closure of the company’s Kisladag mine, in Turkey, after its environmental impact assessment on the project was challenged.

Wright confirmed Eldorado has temporarily ceased operations to comply with the order, but expects to see resolution through the courts. Eldorado still has confidence in Turkey as a country of operation, with a construction decision for its Efemcukuru gold project in the country expected by year-end.

Common theme

Senior producers at the forum reiterated a common theme of cost control, reserve replacement and project pipeline sustainability.

Despite posting one of the best year-to-date returns, Barrick Gold (ABX-T, ABX-N) president and CEO Gregory Wilkins lamented the company’s stock performance, with gold trading above US$730 per oz.

With total cash costs increasing about 25% annually since 2005, Barrick acknowledges the need to get a handle on operating expenses. Although inflation, currency fluctuations and royalties all contributed to the increase, Wilkins said the company’s acquisition of Placer Dome was the largest single factor in last year’s cost rise.

This year, Barrick attributes lower average head grades at its mines and increased waste stripping as the prime factors pushing 2007 total cash costs to the US$350-per-oz. level.

Addressing reserve replacement concerns, the company has allocated $185 million for exploration this year. Reserves have been replaced annually since 2000 — taking into account Barrick’s takeovers of Homestake Mining in 2001 and Placer Dome in 2006.

Touting its recent acquisition of Bema Gold as part of its growth strategy, Kinross Gold (K-T, KGC-N) said it was increasing production, reserves and introducing cost streamlining initiatives to boost margins.

The rising producer also announced an asset-swap deal with Goldcorp (G-T, GG-N) to acquire 100% of the La Coipa mine, in northern Chile. In exchange, Kinross will transfer its 31.9% interest in the Musselwhite joint venture and its 49% stake in the Porcupine Joint Venture, in Timmins, Ont., to Goldcorp. Kinross will also receive a US$200-million payment.

Newmont Mining (NMC-T, NEM-N) president and CEO Richard O’Brien painted a sobering picture of the struggles the senior is experiencing. The gold major has seen a dip in metal production while it moves to start up new mines next year.

Power shortages in Ghana prompted the company to participate in construction of an 80-megawatt plant to run operations. It is also building a US$630-million coal-fired plant in Nevada to reduce operating costs at its operations in the state.

Additionally, with some of Newmont’s larger-scale core projects aging, reserve replacement has become a critical issue. Smaller-scale operations are one avenue being evaluated as the world’s number two gold producer looks to maintain its ranking.

Gold Fields’ (GFI-N, GOF-L) growth strategy is heavily weighted on its South Deep expansion, in South Africa. CEO Ian Cockerill said mine modernization is key to lowering operating costs while boosting production from 300,000 oz. per year to an expected 800,000 oz. annually over the next several years. South Deep hosts 29 million oz. of gold reserves, plus resources of 67 million contained ounces.

Although not a pure gold company, Freeport-McMoRan Copper & Gold (FCX-N) presented at the forum, touching on its acquisition of Phelps Dodge earlier this year.

Com
pany CEO Richard Adkerson described the takeover as an opportunity to diversify outside of Indonesia, where Freeport operates the massive Grasberg copper-gold complex. The move expands its base into North America and Chile.

Adkerson remains bullish on copper, which represented 78% of Freeport’s 2006 pro forma revenue by commodity, but was also optimistic on the outlook for gold — which provides 10% of the company’s revenue. As a result of the takeover, the company is now the world’s largest producer of molybdenum, accounting for 12% of its 2006 pro forma revenue.