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Greenfields key to gold's future, says St Barbara CEO

The gold industry needs to be much more pro-active with greenfields exploration to ensure a thriving future, particularly in Australia where the competitive position of individual companies is being eroded by depleting reserves, S&P/ASX 200 miner St Barbara Ltd. CEO Bob Vassie said.

Industry lobby groups have repeatedly called for more industry-friendly taxation and regulatory policies in light of rising costs and the fact that greenfields exploration is at historic lows, as revealed in both a MinEx Consulting report in October 2017 and again by the Australian Bureau of Statistics in March.

The situation is particularly dire for the gold sector, as the MinEx report forecast that by 2032 over half of Australia’s production will come from mines that are yet to be discovered, yet the weighted average delay between discovery and development is 13 years.

Most major and mid-tier gold companies, particularly in Australia, have been more interested in growing — with great success — via acquisitions and brownfields exploration; while in March Gold Fields Ltd. Executive Vice President Australasia Stuart Mathews conceded to S&P Global Market Intelligence that mines were getting deeper and more expensive, but said the company would still focus on brownfields.

Yet Vassie said in an exclusive interview with S&P Global Market Intelligence that major gold companies should urgently return to their own greenfields exploration given the challenges they face and the World Gold Council's recent report which warned that the sector faces "secular decline" beyond the short-term, during which time current record levels of production can only be sustained for "the next few years."

He said that while Australia's mid-tier gold producers' success in lowering operating costs has seen their valuations grow to be more in line with their North American peers who have traditionally been valued higher as their projects generally have a longer reserve life, the greenfields challenge remains.

"You do want to turn up your organic taps, because in brownfields you know what works and you have the permits so it makes sense; but we also need to get on with the job of greenfields because while you can sometimes replace the depletion rate, not all deposits are like that. Some just run out or the grade drops or the strip ratio increases to the point that they're no longer economic," he said.

"So the greenfields pressure, in the face of these new entries into the market, is on us in Australia if we want to maintain our position as number two in the world for gold production [behind China]."

St Barbara is leading the way, drilling greenfields on its Pinjin property northeast of Kalgoorlie, Back Creek in New South Wales, and what Vassie described as "quite a package of ground" from Gwalia extending north for about 60 kilometers of strike.

"Our package around Leonora where we're currently operating is quite prospective but hasn't been turned over by modern exploration, and that's what we've got to get on with," Vassie said.

Alternate 'big brother' strategy

Corporate advisory firm PCF Capital's Managing Director Liam Twigger told S&P Global Market Intelligence that it is often better for major gold producers to have a portfolio of stakes in junior companies, as has been done out of necessity in North America as a "big brother" strategy by the likes of Goldcorp Inc., Osisko Gold Royalties Ltd. and Hudbay Minerals Inc.

"The only way juniors have been able to get capital raises away in North America is having a big brother taking 15% or 20% of the asset or them. In Australia, the risk appetite has been stronger so exploration floats have been given life, but St Barbara and Northern Star Resources Ltd. have led the way in getting behind initial public offerings," Twigger said.

St Barbara has 16% equity in Bendigo, Victoria-focused Catalyst Metals Ltd., and also in Peel Mining Ltd. which has a large gold and base metals tenement package south of Cobar, New South Wales; and recently took 10% in ABM Resources, recently renamed Prodigy Gold NL, plus 12.3% in Duketon Mining Ltd. in Western Australia.

Twigger said juniors would rather get money from their investor base rather than potentially give takeover control, they are generally "fleet of foot" and can do exploration cheaper, and "don't get caught up with the reporting and bureaucracy that you get with the majors."