Gold Miners Leveraging New Tech to Find High-Grade Deposits

• Gold mining CEOs Gerald Panneton of Gold Terra Resources and Dustin Perry of Kingfisher Metals discuss the gold mining landscape and their companies' strategies
• Gold prices are high, but costs have risen significantly, making it challenging to build new mines profitably
• High-grade gold deposits are most attractive as they require less capital and have better margins
• Jurisdiction, location and infrastructure are critical factors in evaluating projects
• New technologies like machine learning can help exploration companies be more efficient and effective in finding new deposits

Opportunities & Challenges In A High-Price Environment

The elevated gold price environment presents opportunities and challenges for mining companies and investors. On the one hand, the higher prices translate into robust profit margins, free cash flow generation, and the ability to fund exploration and development projects for many miners internally. Panneton noted, "The gold price is great, don't get me wrong."

However, the CEOs quickly noted that operating cost inflation is eating into those margins. Sustaining capital costs, fuel, labor, and equipment costs have all risen substantially. Perry explained, "The cost of drilling has gone up along with the cost of mining. Labor across the board has gone up." This creates a challenging environment for building new mines despite the higher gold price. "It's a lot more challenging because of the cost of building, the location, the remoteness," said Panneton. "Look at the average all-in cost for Newmont, or Barrick, or any of the gold majors, and it's quite high."

The implication is that investors need to be highly selective in choosing which companies are best positioned to navigate this environment. Those with high-grade reserves and resources that can be mined economically even if costs continue to rise may be most attractive. Jurisdiction is also key, with mining-friendly districts and infrastructure providing a distinct advantage. The CEOs emphasized that while the gold price may enable mining of lower-grade deposits that were previously uneconomic, the capital and operating costs required may still be prohibitive.

"You have to look at grade," Panneton reiterated. Low-grade deposits require a huge amount of capital. Rock is equal to risk."

Being as efficient as possible with exploration budgets is critical for exploration-stage companies. This includes leveraging new technologies like artificial intelligence and machine learning to process historic exploration data to generate new targets. It also means being highly selective in drilling targets to minimize wasted meterage.

Overall, while the high-price environment is net positive for the gold mining industry, investors need to recognize the offsetting impacts of rising costs. Careful due diligence in identifying companies with high-margin projects and experienced, disciplined management teams is more important than ever.

The Gold Price vs. Cost Equation

The relationship between the price of gold and the cost to mine is a fundamental consideration for investors in gold mining stocks. While the current gold price of around $2,300 per ounce is near all-time highs and well above the cost of production for most miners, the CEOs highlighted that the industry is facing significant cost pressures.

Panneton provided historical context, noting that when he built his first mine in the early 2000s, gold was just $400 per ounce. At that level, very few projects were economically viable. Today's price environment is dramatically different. "The gold price doesn't have much room to go down because of those costs," he said. "All-in cost is hovering between $1,400 to $1,600 an ounce, some mines are $2,000 an ounce already."

Perry echoed these concerns, stating that cost inflation impacts every aspect of the mining business. "The cost of drilling has gone up along with the cost of mining," he said. "Labor across the board has gone up." This means that despite the high gold price, margins for many mining companies are being squeezed. It also makes the economics of developing new mines more challenging. "Putting a mining production in today's world is a lot more challenging because of the cost of building, the location, the remoteness," Panneton explained.

For investors, this underscores the importance of focusing on mining companies with high-quality assets that can be mined profitably even in an inflationary cost environment. It also suggests that companies with existing production may be better positioned than those needing to build new mines soon. Ultimately, while the high gold price is a positive for the industry, investors need to be cognizant of the offsetting impacts of rising costs. Careful analysis of a company's cost structure, grade profile, and jurisdictional advantages is crucial to identifying the best producers and projects to generate strong shareholder returns in this environment.

The Appeal of High-Grade Deposits

In the current environment of elevated gold prices but rising costs, the CEOs emphasized that high-grade gold deposits are the most attractive for mining companies and investors. These deposits, typically having gold grades above 5 grams per tonne, require processing less ore to achieve the same production level as lower-grade deposits. This can translate into significant cost savings and higher profit margins. Panneton was emphatic about the importance of grades. "You have to look at grade," he said. "Low-grade deposits require a huge amount of capital for a huge amount of rock. I say rock is equal to risk, that's how I see it, for a very small margin."

Instead, Panneton's Gold Terra Resources is focused on finding high-grade ounces in the 16-22 grams per tonne range, similar to what was historically mined in the Yellowknife district. "I switched to high-grade, smaller investment, big margin - that's my goal," he said.

The economic appeal of high-grade deposits is straightforward. With less ore to process, capital costs for the processing plant are lower. Operating costs are also reduced, particularly for energy and consumables like grinding media and reagents. This can result in significantly higher cash margins per ounce of gold produced. High-grade deposits also often have a smaller environmental footprint as less waste rock needs to be moved and fewer tailings are produced. This can be a significant permitting advantage.

For investors, companies with high-grade projects are attractive because they have the potential to be highly profitable even in an inflationary cost environment. They also typically have a lower risk profile and may have an easier path to production than larger, lower-grade projects. However, the CEOs cautioned that grade is not the only consideration. Jurisdiction, infrastructure, and the management team's experience are also critical factors. But generally, companies that can find and advance high-grade gold deposits are well positioned to create shareholder value in the current market.

Jurisdiction & Infrastructure Are Critical

Beyond grade, the CEOs emphasized that a project's location and infrastructure are paramount. Panneton pointed out the benefit of being in the Northwest Territories, where there are already two past-producing mines. "The Con Mine generated 6 million ounces of gold at 16 to 22 grams over a long period of time. This is a very high-grade camp," he said.

Perry's Kingfisher Metals is focused on British Columbia's Golden Triangle, home to some of the largest gold deposits in the world. While remote, key infrastructure is being built out. "We are within sight of the highway," Perry said. "KSM requires a 40-kilometer tunnel to get into it. Bruce Jack has a road going over a glacier. If you can put a 9 km road off a highway with a power line right there, it changes the dynamics of that.

The CEOs bluntly assessed some prominent deposits that are disadvantaged from an infrastructure perspective. "Everything needs to be permanent, including your power line or road," said Panneton. "You have to be careful about big projects - some will not get developed for a long, long time.

Using Technology to Unlock Value

As the gold mining industry faces the challenges of discovering new deposits in an environment of rising costs, the CEOs highlighted the importance of leveraging new technologies to unlock value. These tools can help exploration companies identify targets more efficiently and effectively, from artificial intelligence to advanced geophysical surveys. Perry's Kingfisher Metals is at the forefront of applying machine learning to mineral exploration. "We're applying machine learning," he explained. "We have three deposits with intercepts over 200 gram-meter gold equivalent. We know where the systems are. We can take this historical data, add new geophysical surveys, and fingerprint everything. Then we can apply that across this giant 630 square kilometer area."

The potential benefits are significant. Machine learning can process vast amounts of data faster than human geologists. It can identify patterns and associations that might be missed by traditional methods. Importantly, it can help exploration teams prioritize their targets, focusing their efforts on the areas most likely to host a significant discovery.

"It's taking bias out of the desktop exploration," Perry said. "But it's also going to save us a lot of money. If it saves you a few helicopter flights."

The CEOs also emphasized the importance of high-quality data as an input for these advanced analytical techniques. This includes detailed drill logs, geophysical surveys, and geochemical sampling. Panneton noted, "The information that goes into that log, whatever it's small, it's like this - it's the base and you pay a lot for that drill core."

Companies successfully applying these new technologies may have a significant competitive advantage for investors. They have the potential to make discoveries more quickly and cost-effectively than their peers. However, as with all exploration, there is still significant risk involved. Not every anomaly identified by machine learning will be a deposit. Nonetheless, in an industry where new discoveries are becoming increasingly rare and expensive, companies leveraging technology to unlock value may be most likely to succeed. For investors, understanding how a company applies these tools and the quality of their data should be a key part of due diligence.

Advice for Investors

When it comes to picking gold stocks, the CEOs had some key advice for investors:

• Focus on companies with high-grade ounces in attractive jurisdictions with good infrastructure
• Look for experienced management teams with a track record of success
• Understand the company's exploration strategy and how they are applying new technologies
• Recognize that even in a high gold price environment, margins can be slim due to rising costs

The Investment Thesis for Gold

• Gold provides portfolio diversification and is seen as a safe haven in times of economic uncertainty
• Gold prices are near all-time highs, boosting revenue and cash flow for miners
• The industry has become more disciplined with capital allocation and focused on shareholder returns
• New deposits are scarce but select companies in proven districts are well-positioned to find them
• Applying advanced exploration techniques can unlock value in historic data sets and generate new targets
• Selectivity is key - focus on high-grade deposits in mining-friendly jurisdictions with infrastructure
• Experienced management teams with skin in the game and a track record of success are crucial

The gold mining industry faces both opportunities and challenges in the current environment. While the high gold price generates robust cash flows, mining CEOs are grappling with rising costs that make new mine development riskier than ever. Companies that can find high-grade ounces in attractive jurisdictions with established infrastructure are best positioned for success. Investors should focus on experienced teams that are leveraging new technologies to make new discoveries cost-effectively. Selectivity and due diligence are especially important to identify the most likely outperforming companies.