Gold miners have been dealt a strong hand with higher gold prices over the last three weeks and could be set to win big from the higher production at lower prices.
Gold investors are now eyeing up a gold price of US$1,400 per ounce, a level unthinkable three months ago, but it will be a great relief to listed gold miners including Silver Lake Resources Limited (ASX: SLR), Evolution Mining (ASX: EVO) and Northern Star Resources Ltd (ASX: NST).
Newcrest Mining Limited (ASX: NCM) is also set to be a big winner from the rising prices. However one factor that sets Newcrest apart from other ASX-listed miners is the company’s substantial gold reserves. These reserves give Newcrest one of the longest production lives in the industry, a feature which plays into the hands of investors with a long time horizon.
In February Newcrest reduced its reserve estimates by 11%, marking down the gold in ore deposits which at the current gold price would be uneconomic to extract. However the company still holds an estimated 78 million ounces of gold and 77 million ounces of silver.
At current rates of gold production (around 2.3 million ounces per year) Newcrest has a reserve life of almost 34 years. This is more than the world’s biggest miners Barrick Gold Inc (NYSE: ABX) and Newmont Gold which have reserve lives of 16 and 20 years respectively.
The large reserves were one of the drivers behind the nearly $6 billion of write downs the company suffered in 2013, but makes Newcrest more attractive to long-term investors hoping to see the company grow, either through increased production or long-term exploration.
It also means that long-term investors can have greater confidence holding the company through gold’s counter-cyclical trends and gives more options to reduce high-cost operations and ramp-up low-cost mines during tough times.
Newcrest Mining’s large pool of reserves and current long reserve life makes it stand out against its international and local peers. It lowers risk for long-term investors given the cyclical nature of the industry, but is just one factor to consider before parting with your money.