'Enormous potential' for mid-size gold miners in Brazil

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Friday, August 5, 2016

Brazil's biggest gold projects are expected to add 15t/y in the near-term, without taking into account smaller projects or those being initially surveyed.

In light of rising gold prices, BNamericas asked Mathias Heider, mineral resources specialist at DNPM, about the outlook for gold projects in Brazil and those that are stalled.

DNPM is a Brazilian federal agency and is part of the mines and energy ministry. It is responsible for managing and monitoring the performance of the mining and metals industry, as well as compiling statistics.

This is the second part of a two-part interview.

BNamericas: International gold producers have been carrying out restructuring and cost-reduction programs, as well as reviewing the pace of investments. Which projects have been impacted the most in Brazil because of such programs?

Heider: As an example, Yamana formed subsidiary Brio Gold, which holds the Pilar and Fazenda Brasileiro mines and C1 Santa Luz and Riacho dos Machados, the latter two mines acquired from Carpathian Gold.

Furthermore, Yamana sold mines Ernesto and Pau a Pique to Aura Minerals. That way, Yamana managed to change its portfolio, retaining the most productive, lowest-costs assets.

Other producers are also revising their local operations. Cost control is an integral part of mining. Gold has recovered part of its losses [...] but price volatility is still high.

On the other hand, the momentum for mergers and acquisitions is positive, allowing companies to take advantage of synergies and improve their output scales.

See details of 38 gold mining projects in Brazil listed on the BNamericas project profile database.

BNamericas: Do you see improving gold prices leading to a resumption of projects in the country?

Heider: We can say that projects are being implemented at a slower pace, and the lack of capital is another point to be considered. But with such shortage many gold assets became very interesting for negotiation. 

The rebound in gold prices also gave the market a number of new projects to be implemented.

However, lower gold prices can lead to the closure of operations and reduce the supply of the yellow metal. On the other hand, it is important to note that outflows from ETF funds is showing a reversal of trend, as we witnessed a smaller outflow in 2015.

BNamericas: How do you see the gold outlook for producers in Brazil in the coming years?

Heider: Gold will always be a safe asset, one that is prized at times of crisis. The trend I see is the closure of high-cost mines and the depletion of reserves in several countries, which will lead to a reconfiguration of international gold supply and a rise in prices.

Brazil's position on the gold production cost curve, together with new projects, makes it possible to estimate a scenario of rising output by 2020.

I see enormous potential for mid-size gold mining in the northern and midwestern regions of Brazil, generating employment and income and driving local development.

But it should be noted that the scarcity of water in Minas Gerais state caused an output rate reduction at some of its gold mines. The water availability scenario is increasingly impacting the mining sector. Companies will have to increase the eco-efficiency and sustainability of their operations, improving relations with the communities involved.

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About Mathias Heider

Mathias Heider is a mineral resources specialist and has been a division head at Brazil's minerals production department DNPM since May 2006. He previously served as a senior analyst in state bank Caixa Econômica Federal. Heider holds a PhD in mineral economics.