Allied Nevada: Silver is Big Part of Our Story

COLORADO SPRINGS, Colo. ( TheStreet ) --

Scott Caldwell, CEO of Allied Nevada Gold ( ANV), is making some big bets over the next two years.

After spinning off from Vista Gold ( VGZ) in 2006, Allied Nevada Gold is trying to gain momentum. Caldwell says its Hycroft mine in Nevada will double gold production by 2013 to 300,000 ounces, although grades will be low.

And while Caldwell does talk up the gold prospects, he really highlights the silver potential of Hycroft, where there are 400 million ounces of proven and probable silver reserves. Caldwell says 50% of the mine's value is coming out of silver.

"If you don't like silver you won't like our story," he says. By 2013, silver production should increase to more than 2 million ounces.

Cash costs for gold are expected to be $450-$490 an ounce, but between 2015-2024 cash costs could fall to $190 an ounce using silver sales to offset the cost of mining gold. Capital costs until 2015 range from $1.4-$1.5 billion, but a full feasibility study should be released in two weeks.

One interesting factoid is that there was a delay in shovel deliveries from Japan as a result of the tsunami and earthquake there on March 11 and Caldwell says this factor has been calculated into its production outlook.



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) 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) 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) 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.

David Stein, president of Aberdeen, a closed end fund, says "10 years ago there was a lot less fewer times you would hear about mining taxes and nationalization." Since all commodities have risen in price, a lot of governments are looking at them as a revenue stream. Stein says this variable could also be weighing on the gold prices.



Roque Benavides, chief executive officer of Buenaventura ( BVN), Peru's largest publically-traded precious metals miner, gets 55% of revenues from gold, 70% from precious metals and invested $220 million in projects in 2010. The company is on track to produce 1.1 million ounces of gold in 2011 but cash costs are increasing from the $464 average in 2010 to $500 primarily because of the rise in nuevo sol, Peru's local currency.

Buenaventura operates 7 mines in Peru and partners with Newmont Mining ( NEM) for a 43.65% ownership of Yanacocha, which has 11.8 million ounces of gold reserves and 3.2 billion pounds of copper. The mine is expected to produce 650,000 ounces of gold a year at $400 cash costs. According to Benavides, Newmont will be providing the project update.

Buenaventura also pairs with Freeport McMoRan Copper & Gold ( FCX), where it owns 19.26% of the Cerro Verde copper mine. Freeport owns 54%. The project is expected to start producing 600 million pounds of copper in 2016. The total capex for both projects is $7.7 billion.

Benavides said that the company has agreed with the Peruvian government that any rise in taxes would come from opertaing profits, which was much better than the steeper royatly the company had feared.

-- Written by Alix Steel.

>To contact the writer of this article, click here: Alix Steel.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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