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Gold Exploration Still Profitable When Done Right

Gold Exploration Still Profitable When Done Right

These days, I get asked a lot: "Why would anyone do mining exploration right now?" But news this week suggests one of the world's largest gold miners thinks it's a great time for grassroots work.

The company is Newmont Mining. Which announced it will pay a substantial US$4 million for a package of exploration properties -- and not in a go-to destination like Nevada or Mexico, but rather in the further-afield terrains of Haiti.

The properties consist of six gold and copper exploration properties across Haiti (pictured in the map below). Which the company has been developing since 2008, in partnership with junior exploration firm Eurasian Minerals. Related: North Dakota No Longer Attractive For Drillers Or Refiners

Haiti

Newmont Mining is buying six exploration projects across Haiti (Source: Eurasian Minerals)

Newmont is now buying out Eurasian's minority interest in the projects -- which would have amounted to somewhere between 25 percent and 30 percent ownership under the agreement between the two partners. Related: Why Has Carbon Capture And Storage Not Taken Off Yet?

Those are interesting figures -- suggesting that Newmont is placing an overall value of as much as $16 million on the projects. All of which are grassroots in nature, having seen rock and stream sediment sampling, but no exploration drilling.

This is a hefty valuation at a time when exploration is "dead," especially given that the projects have been on care and maintenance since 2013 as Haiti's government revamps its mining code.

The deal thus shows that good exploration prospects are still in demand from the world's biggest mining companies. And suggests just how profitable exploration can be for developers -- with junior partner Eurasian Minerals likely to make a significant return on the buyout. Related: OPEC Infighting Reaching Critical Levels

Eurasian spent less than $2 million developing the projects during 2006 to 2008, before they were joint-ventured to Newmont -- who then covered all exploration expenses. The $4 million payout thus represents a more than 100 percent return on capital. And Eurasian will retain a 0.5 percent royalty on the projects.

Proving that exploration is still one of the most profitable businesses on the planet, when done right. And still a necessity in the global hunt for the next big source of gold, copper and a host of other metals.

Here's to giving 'em what they want,

Dave Forest

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