NovaGold (NG) CEO Rick Van Nieuwenhuyse, says one of the biggest problems for the mining industry is resource nationalization. It's a point he uses to underscore the fact that NovaGold mines in Alaska and British Columbia. Hugo Chavez in Venezuela just demonstrated the risk Monday, announcing no gold would leave the country and that companies have 90 days to establish joint ventures with Venezuela, which will own 55% majority stakes in the partnerships it agrees to. Other major gold miners have been shrugging off this risk as part of the negotiating process with local populations and governments. NovaGold's flagship mine, Donlin, has the ability to produce 1.3 million ounces for 25 years at high grade gold at 2.2 grams per ton, but NovaGold, which partners 50/50 with Barrick Gold (ABX) on the project, has to pay up. Novagold's cost share is $3.5 billion vs. the originally estimated $2 billion, and that figure includes building a natural gas pipeline. Van Nieuwenhuyse says that for every dollar invested in NovaGold, shareholders get $14 worth of gold. The company is now working with JPMorgan (JPM) to ramp up value for investors as its stock is down more than 40% for the year despite a 30% rally in the gold price.
Tye Burt, CEO of Kinross Gold (KGC - Get Report) has a lot of 'no's' in his presentation at the Denver Gold Forum -- no mergers and acquisitions, no issuing shares, no diversification into other metals and no using base metals to offset gold production costs. Burt says the company hedges oil and foreign exchange rates, and is trying to hedge big steel purchases. The company is on track to produce 2.6 million - 2.7 million ounces of gold in 2011 at cash costs at the low end of its previously forecasted range of $560-$610. The quality of gold has reportedly also risen 41% since 2005, and Burt says he is looking at high gold grade rather than size of a project. According to Burt's presentation, for every $1,000 invested, Kinross added 5.6 ounces to total resources, top in its field, and 0.17 ounces of estimated 2011 production, behind Newmont and Barrick.
Gold Fields (GFI - Get Report) is trying to get out of Dodge, or in this case South Africa. In 2009, the company received 60% of its gold production from South Africa and its 2015 target is 40%. The company is ramping up South America production significantly from 5% to 20% in the same time frame and marginally expanding production in Australia and West Africa. The gold miner upwardly revised one of its main South American projects, Chucapaca in Peru, increasing its resource base by 35% to 7.6 million ounces from 5.6 million ounces. The gold also went from the "inferred" category into the "indicated" category, which is very close to reserve status -- meaning those ounces can count towards Gold Fields' total reserves.
Fifty percent of the world's gold reserves are in South Africa, but miners are plagued by bad press, high taxes, nationalization worries, political risk and a rising currencies. Most gold miners who operate there, like Harmony Gold (HMY - Get Report) are also trying to diversify. "As a company and an industry we are very close to government ... we understand what they are trying to do with the mining industry ... I believe we will come up with solutions," says CEO Nick Holland.
Gold experts at the Denver Gold Forum believe political threats to gold miners, from higher taxes to outright nationalization, are only likely to increase as gold prices move higher. David Christensen, chief executive officer of ASA Gold and Precious Metals (ASA) names geopolitical risk as the number one worry spot for gold miners. Christensen said higher taxes and types of nationalization are a given. "The gold price is higher. The pie has gotten bigger so the perception is that [countries] should take a larger portion of the pie." Christensen says West Africa is the riskiest area despite the fact that South American countries like Peru and Venezuela have been getting all the nationalization press. Christensen says that South American leadership is more reasonable when negotiating with gold miners and that West Africa might be more aggressive. A typical outcome would be localization, where the government requires a miner to give back a percentage of its company whether in terms of profits, physical gold, stock incentives, or ceding land. John Doody, editor of GoldStockTrades.com, says that he likes to look at the royalty companies like Royal Gold (RGLD) and Franco Nevada (FNV) where they are protected from political risks.