further illustrates the difficulties the Majors are facing (and gold production in general - is this peak gold?).
It just shows the attractiveness of investing in Juniors in safe parts of the world.
By Steve James
NEW YORK, Feb 8 (Reuters) - Newmont Mining Corp (NEM), is boosting its exploration budget by approximately 10 percent to 15 percent this year and will target smaller-size gold deposits to help build up dwindling reserves, its chief executive said on Friday.
Richard O'Brien also told Wall Street analysts that the world's No. 2 gold producer will spend some $1 billion in capital investment this year, focusing on three major projects -- its Boddington gold mine in Australia, Yanacocha in Peru and completing its own power plant to fuel Newmont's Nevada mines.
And he did not rule out making more acquisitions or Newmont possibly expanding into China, Russia, Democratic Republic of Congo (DRC) and other politically risky regions, in its efforts to seek out increasingly challenging gold deposits.
"You will continue to see Newmont invest in projects like Miramar," he said referring to the recent $1.52 billion deal to acquire Canadian explorer Miramar Mining Corp (MNG) . The deal gives Newmont control of the undeveloped Hope Bay project in the far north Canadian territory of Nunavut.
Gold miners have struggled recently to find reserves to ensure future production. Last September, Newmont warned the mature and low-grade nature of current gold deposits could limit its ability to replace reserves this year.
While gold prices have reached record highs recently, the rise has been matched by soaring costs for labor, energy, and industrial commodities, which have pressured company margins.
Denver-based Newmont reported proven and probable reserves at the end of 2007 of 86.5 million equity ounces compared with 93.9 million equity ounces a year earlier. Equity ounces are the portion owned by Newmont as opposed to project partners.
At Friday's "analyst day," O'Brien said Newmont expects to spend approximately $220 million to $230 million on exploration activities in 2008, including approximately $29 million at Hope Bay. That is up from the $198 million exploration budget last year, $188 million in 2006 and $180 million in 2005.
While Newmont has historically mined big projects of 10 million ounces or more, only about 14 of the world's 800-plus known deposits contain more than 50 million ounces, he said.
"I believe we have to be flexible to move down," he said in Webcast comments monitored in New York.
Asked if Newmont would be targeting projects of less than 1 million ounces, O'Brien said: "No, but we have to accept that some projects will be less than 10 million."
One analyst asked O'Brien if there were any parts of the world where Newmont would not go to mine gold.
"We enjoy staying in regions with a more stable environment, like Canada," he said. "(But) People ask when we will go to China or Russia or the DRC. I can't say when, but at some point I anticipate we will be in all those."
But only after careful consideration and under the right conditions for security and investment safety, he said.
In Indonesia, where Newmont operates the Batu Hijau project, "there is still political risk from time to time," O'Brien said.
He said capital expenditure this year would focus on the extension of drilling at Boddington in Western Australia, as well as at Yanacocha, where it is building a new gold mill following a drop in production from 3.2 million ounces in 2005 to 1.6 million last year.
Also, the Nevada power plant, which the company estimates will save it $25 per ounce of gold, is expected to begin generating power in the middle of this year.
Newmont's presentation for analysts came a day after it said fourth-quarter gold sales fell 18 percent from a year earlier and forecast 2008 sales would be in line with its 2007 mark. For 2007, total equity gold sales totaled 5.3 million ounces, down from 5.9 million ounces in 2006.
Newmont is scheduled to release its fourth-quarter earnings on Feb. 21. (Reporting by Steve James, editing by Gerald E. McCormick)
