Non-Ferrous Exploration Spending Down 40% in 2009

The Metals Economics Group (MEG) reported in late September 2009 that worldwide exploration spending for precious and base metals, diamonds, uranium, and some industrial metals will total about $8.4 billion in 2009, down from $14 billion in 2008. The preliminary estimate for 2009 was based on work being done on MEG’s annual study, Corporate Exploration Strategies, which was scheduled for release in late October.

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Newmont Starts Up at Boddington

Newmont Mining produced the first gold and copper concentrate at its Boddington mine in Western Australia in mid-August 2009, following start of operations in late July. Ramp-up to design capacity is expected to take about 12 months. Production over the first five years of operation will average about 1 million oz/y of gold and 30,000 mt/y of copper in concentrate. Costs applicable to sales, net of by-product credits, are expected to average $300/oz of gold over the same period. Capital costs are expected to come in at between $2.8 billion and $2.9 billion.

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Barrick Sells Billions in Shares to Buy Back Hedges

Barrick Gold announced on September 10, 2009, that gross proceeds from a sale of its shares would total about $4 billion, most of which will be used to eliminate forward gold sales contracts (hedges), and subsequently announced on September 23 that the deal had closed. Barrick’s initial announcement on September 7 called for sale of $3 billion in shares; however, an increase in shares bought by the public and by the underwriting syndicate led by RBC Capital Markets, Morgan Stanley, J.P. Morgan Securities and Scotia Capital, increased the total to $4 billion. Thomson Reuters reported that, according to its data, the Barrick transaction was the largest single sale of a company’s stock in Canadian history.

In its September 7 announcement, Barrick said it will use $1.9 billion of the net proceeds to eliminate all of its fixed priced (non-participating) gold contracts within the next 12 months and approximately $1 billion to eliminate a portion of its floating spot price (fully participating) gold contracts. The fixed price contracts will be eliminated through purchase of gold in the open market and/or delivery of gold from Barrick’s production. No activity in the gold market is required to settle the floating contracts. The company will record a $5.6-billion charge to earnings in the third quarter of 2009 as a result of a change in accounting treatment for the contracts.

Barrick said it is closing out its hedges to gain full leverage to the gold price on all future production “due to an increasingly positive outlook on the gold price and continuing robust gold supply/demand fundamentals.” The company expects that global monetary and fiscal reflation will be necessary for years to come, resulting in an increased risk of higher inflation and a future negative impact on the value of global currencies.

Also, Barrick President and CEO Aaron Regent said, “The gold hedge book has been a particular concern among our shareholders and the broader market, which we believe has obscured the many positive developments within the company. As a result of today’s decision, we have addressed that concern and maintained our financial flexibility. With the industry’s largest production and reserves, Barrick provides exceptional leverage to the gold price, which we expect will be further enhanced as we build our new generation of low-cost mines.”

Barrick’s current development projects include Buzwagi in Tanzania, Cortez Hills in Nevada, Pueblo Viejo in the Dominican Republic, and Pascua-Lama in Chile and Argentina. When these projects reach full production, they will collectively add about 2.6 million oz to Barrick’s annual production at lower total cash costs than the current Barrick profile.

Eldorado Gold Set to Acquire Sino Gold for $2B

Eldorado Gold and Sino Gold announced plans in late August 2009 for an agreed, all-share acquisition of Sino by Eldorado that values Sino at about C$2 billion. At the time of the announcement, Eldorado already held a 19.8% interest in Sino.

Assuming completion of the transaction, the combined company will have four operating gold mines, three in China and one in Turkey, that are expected to produce a combined total of about 550,000 oz of gold in 2009. Two new mines, one in China and one in Turkey, are expected to lift production to about

850,000 oz in 2011, and project development combined with expansion at existing operations offers the opportunity to increase production to more than 1 million oz/y by 2013. The combined company will have proven and probable reserves of 12.7 million oz.

Eldorado is headquartered in Vancouver, British Columbia; Sino is headquartered in Sydney, Australia. Eldorado plans to establish an Australian listing for its shares, which would allow Sino shareholders to hold their newly acquired Eldorado shares on the Australian Stock Exchange. The company will also maintain an important regional office in Sydney. The transaction is expected to close in December 2009.

Eldorado currently produces gold from the Kişladağ mine (100% owned) in Turkey and the Tanjianshan mine (90% owned) in China. Kişladağ is an open-pit mine that began production in July 2006 and that is forecast to produce 230,000 to 240,000 oz in 2009. Tanjianshan is an open-pit operation based on two separate deposits that began commercial production in February 2007 and that is forecast to produce 95,000 to 100,000 oz in 2009. In June 2008, Eldorado initiated construction of its underground Efemçukuru mine in Turkey, with startup planned for late 2010 at a designed production rate of 112,000 oz/y. Other Eldorado development assets include its Perama Hill gold project in Greece and its Tocantinzinho gold and Vila Nova iron ore projects in Brazil.

Sino Gold has current gold production from its 82%-owned, open-pit/ underground Jinfeng gold mine in Guizhou province, southern China, with current production of about 151,000 oz/y, and from its 95%-owned, underground White Mountain gold mine in Jilin province, northeast China, where commercial production began in January 2009, targeting design capacity of 65,000 oz/y. Sino is nearing a construction start at its open-pit/underground Eastern Dragon project in Heilongjiang province, northeast, China, with production planned at about 90,000 oz/y, and it is assessing the potential of its Beyinhar project in Inner Mongolia to be developed as an open-pit, heap leach gold operation.

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