Global Gold Rush
by ANDY HOFFMAN
Tye Burt has always been able to
get the most out of the unwanted, the discarded
and the overlooked.
As a young boy growing up in Green River, Ont.,
he would vigorously polish bruised apples from
his family's orchard and then sell them to
motorists on the side of the highway at full
It was a trait that he carried with him. Four
years ago, on a trip to Nova Scotia, Mr. Burt
purchased a decrepit wooden schooner, a vessel
that had been a star exhibit at Expo 67 but had
been so neglected it was barely seaworthy.
The mining executive oversaw painstaking work
that restored the schooner's former grandeur to
the point when last fall the Atlantica was
suitable for the Duke of Edinburgh to enjoy as
part of a Canadian charity tour.
Those were mere fix-up jobs, however, compared
to what Mr. Burt has done since taking on the
top job at Kinross Gold Corp. in 2005. He gutted
the management team and orchestrated a corporate
restructuring, and is now taking the
Toronto-based miner into places many once feared
to tread. His favourite destination? Russia.
"As we see the traditional sources of gold
production, like South Africa, like the United
States, like Canada in decline, Russia is
growing in prominence and in prospect," Mr. Burt
says. He suggests there are 300 million to 400
million ounces of untapped gold in Russia.
Kinross is by no means the only gold miner
jetting off to wild and wooly regions. Amid
record gold prices bullion settled at $975
(U.S.) an ounce in New York after surging to a
record $978.50 yesterday the entire industry
has had to look beyond its comfort zone. Way
"The places you can go to find and develop new
deposits in a friendly way are shrinking," Mr.
In what could be a new gilded age, countries
like China, Russia and some developing parts of
Africa are poised to become the new
bullion-producing juggernauts, despite the fact
that foreign miners have had trouble securing
certainty of their land titles in these areas.
Those willing to take on the risk of trying to
build mines in these countries could be in for
huge rewards or humongous heartbreak.
"Regions that a few years ago the majors
wouldn't look at are becoming increasingly
attractive," said William Tankard, a senior
analyst at GFMS Ltd., a London-based consulting
firm to the precious metals mining industry.
China, with a hundreds of small gold mines
operated by a seemingly inexhaustible labour
force, recently ended South Africa's
century-long reign as the world's top-producing
gold nation, according to GFMS.
China produced 276 tonnes of gold in 2007, or
roughly 9.7 million ounces. That was a
12-per-cent jump from 2006, GFMS said. By
contrast, South Africa the world's largest
gold producer since 1905 produced 272 tonnes,
an 8-per-cent decline from the year before.
Faced with the rising technical and safety
challenges to mine ever-deeper deposits, as well
as production cuts due to electricity shortages,
South Africa is unlikely to ever regain its
title as the planet's best place to mine gold.
In South Africa's wake, the smart money is all
over the map.
Just last month, Richard O'Brien, the head of
Newmont Mining Corp., conceded that the world's
second-largest gold company will have to travel
to places it had once considered off limits in
its quest for rich sources of the precious
"We enjoy staying in regions with a more stable
environment like Canada," Mr. O'Brien told
analysts. "[But] people ask when we will go to
China, Russia or the Democratic Republic of
Congo. I can't say when, but at some point, I
anticipate we will be in all of those."
Gold miners have always had to go where the gold
is but the current dearth of large-scale
deposits in mining-friendly countries has
created unprecedented challenges. The sands of
the gold mining industry are shifting and they
are headed toward places mired in alarming
"I'm going to predict that other major mining
companies are going to go to Russia in some size
in the future," Mr. Burt says. "There will be
partnerships in multiple metals. So yes, we're
That wasn't a claim Mr. Burt would have made
when Kinross lured him from a senior management
position at Barrick Gold Corp.
At the time, Kinross was a basket case of a gold
company, burdened with a scattered portfolio of
high-cost and mostly low-grade assets, largely
controlled by the company's joint venture
partners. Its prospects for growth were dismal.
Kinross looked destined to be stuck with
shrinking reserves and flat production hovering
around 1.5 million ounces of gold per year. The
situation was so bleak that, in the midst of an
investigation by the U.S. Securities and
Exchange Commission into the way the company had
accounted for a three-way merger with a pair of
Canadian rivals, Kinross didn't published
financial results for a year.
"Nobody was considering Kinross as a serious
investment or a serious player," said Catherine
Gignac, an analyst at Wellington West Capital.
Many investors thought its best hope was as a
Less than three years later, Mr. Burt has
orchestrated a stunning turnaround, positioning
the company as a growth leader rather than
The company's gold mine portfolio has been
transformed to focus on better-quality mines in
fewer regions, including Chile and Brazil, where
Kinross has full control of operations, cost
expenditures and exploration spending.
A $3.5-billion takeover of Bema Gold that closed
early last year helped give Kinross bragging
rights to the best near-term growth prospects
among major gold producers.
Annual production is forecast to rise 60 per
cent over the next two years to 2.5 million
ounces as a massive expansion of its low-grade
but long-life Paracatu mine in Brazil comes to
fruition, along with a new mine in Washington
Yet with the price of gold charging toward
$1,000 an ounce, Kinross's most promising asset
in the short term is also its most contentious.
Less than three months from now, Kinross will
begin commercial production at its $705-million
(U.S.) Kupol project in Russia, well north of
the Arctic Circle.
The mine is endowed with an exceedingly high
grade of roughly 19.5 grams of gold per tonne of
ore. That will make it one of the lowest-cost
gold mines in the world at a time when bullion
producers are grappling with soaring costs.
In gold mining, however, a mine's location can
be just as important as its economics. And with
Kupol, more daunting than its remoteness is
Moscow, nine time zones to the east.
'THE NEXT BIG PLACE'
Few dispute Russia's promising mineral
potential. Currently the world's fifth-largest
producer of gold, it has 9 per cent of the
world's gold reserves.
Mr. Burt believes his company is blazing a trail
that will soon be crowded with larger
competitors looking to partner with Russia's
domestic producers. "From a resource
perspective, I think Russia is the next big
place," he said.
Seventy-five per cent owned by Kinross, Kupol
will be the largest foreign-controlled mining
operation ever in Russia. (The minority is held
by the local state government of Chukotka.)
Kinross, of course, is no stranger to the
country. The company has been mining gold in the
far east of Russia for 12 years, first with its
now mothballed Kubaka mine, which it sold to
Russian producer Polymetal last year for
$15-million, and currently with its Julietta
mine, which it acquired as part of the Bema
takeover along with Kupol.
Key to the company's success in Russia,
according to Mr. Burt, has been keeping strong
ties with Moscow, vigorously avoiding corruption
and being a "good corporate citizen" by funding
social programs and infrastructure development
in the local areas where it operates. "You have
to put in the time," he said.
Russia, he says, has proven to be a far more
stable mining jurisdiction than countries such
as Venezuela, Ecuador and Bolivia that have
seized resource assets from foreign companies,
or even Argentina, which recently imposed
unexpected export duties on gold and base metals
"There has not been any history of government
interference in the mining sector. Nobody has
been expropriated. There have not been radical
changes to the tax regime. That behaviour has
been seen in many other jurisdictions. It has
not been seen in Russia," he said.
THE MOSCOW FACTOR
Kupol is, however, a far more valuable deposit
than either Kubaka or Julietta, particularly as
gold prices hit new records. While Kupol has
only 3.2 million ounces of proven and probable
gold reserves, its high grade is expected to
make it one of the world's highest-margin gold
mines, with production costs averaging between
$210 and $220 an ounce more than $100 below
the industry average.
Russia accounts for just 8 per cent of Kinross's
47 million ounces of gold reserves but TD
Securities analyst Greg Barnes recently told
clients that Kupol is the second-largest
contributor to his calculation of Kinross's net
asset value behind Paracatu.
"The company's significant exposure to Russia
provides some cause for concern
interference in the mine would, in our view,
have a materially negative impact on Kinross's
valuation," Mr. Barnes wrote in a report.
Kinross maintains that the mine's ownership
structure will be a crucial element to success.
The mine is expected to create 1,200 local jobs
and spinoff employment for local businesses. As
well, Kinross will pay a corporate tax rate of
24 per cent and an off-the-top royalty of 6 per
As for possible legislation that would deem
major deposits "strategic assets," Kinross said
Kupol will be grandfathered under any new law.
"As a currently permitted and already-built
project, we are exempted from that. We have had
assurances in writing and in the legislation,"
Mr. Burt said.
Canadian gold guru Pierre Lassonde thinks
otherwise, saying in an interview: "I wouldn't
put a dime in Russia."
Mr. Lassonde the former president of Newmont
Mining Corp. and current chairman of relaunched
mining and energy royalty company Franco-Nevada
Corp. believes the rule of law in Russia is
far too murky for a Western mining company to
invest the hundreds of millions of dollars
needed to build a mine.
"It's bandit capitalism. Every time a foreign
company has success in Russia, they find a way
to legally take it away from them," he said.
Well-regarded gold investor Charles Oliver of
Sprott Asset Management said he is "cautiously
optimistic" about Russia as a destination for
mining firms, but he is not as enthusiastic as
he once was.
"There are concerns on [mining] title. We
haven't seen anybody had their mine taken away,
but it is the kind of thing where you want to
tread carefully," Mr. Oliver said.
Despite the political noise, Mr. Burt maintains
that Russia, with its massive store of gold
reserves, is simply too big to ignore and even
his old employer Barrick will be lured back to
"The supermajors have no choice. That's why you
see Barrick in Pakistan and that's why you hear
[Newmont's] Richard O'Brien saying those things.
They have a big tiger to feed and they are going
to have to go to those places. Do we have a head
start? I firmly believe we do. Are we going to
be unique in five years? No. These big companies
have lots of resources and they'll be coming,
too. I think we have an edge. Part of the edge
is our size, part is our experience and part is
our relationships. We are there."
Canada has seen its share of global gold
production cut by nearly half over the past 13
years. In 1995, Canada accounted for 6.8 per
cent of world gold production, but by last year,
it had fallen to just 3.8 per cent, good enough
for eighth place among gold producing nations,
Between 1995 and 2005 Canada's gold reserves
plunged 40 per cent, according to the Mining
Association of Canada, falling to 971 tonnes
from 1,540 tonnes.
Yet with the largest concentration of junior
mining firms, Canada as a country still ranks
No. 1 in mineral exploration spending,
accounting for 19 per cent of the $7-billion
(U.S.) spent on exploration in 2006 according to
Halifax-based Metals Economics Group.
Despite the current disconnect between
exploration spending in Canada and gold
production, Mr. Lassonde thinks the money is
going to the right place. He believes more
Canadian exploration success is certain because
of improvements in geological technology.
"We are the second-largest land mass in the
world, [behind Russia] and that gives us a huge
advantage. Do you really believe that everything
has been found in Canada? Absolutely not," he
OVER THE HORIZON
While Canada as a country is no longer a leader
in gold production, Canadian gold miners still
dominate the top of the bullion mining ranks. A
willingness to operate in far-flung
jurisdictions beyond their own borders has kept
Barrick, Kinross and Goldcorp Inc. among the
Producing roughly eight million ounces of gold a
year, Toronto-based Barrick remains the world's
largest gold miner but has just two small in
mines Canada among its stable of 27 worldwide.
It has been a prolific acquirer of foreign
companies and assets and has major operations in
Nevada, South America, Papua New Guinea,
Australia and Tanzania.
Vancouver-based Goldcorp's Red Lake operations
in Ontario were the largest single contributor
to the company's overall production of 2.3
million gold ounces last year. Red Lake produced
more than 700,000 ounces while two other Ontario
mines brought the Canadian total to over one
Yet like Barrick, Goldcorp has also been an
aggressive buyer of foreign assets, avoiding the
fate of Canadian nickel stalwarts Inco and
Falconbridge, as well as aluminum major Alcan,
which each had their flagship operations in
Canada and were all snapped up by opportunistic
foreign mining giants.
While the record gold price has given producers
the financial incentive and wherewithal to look
further afield for new gold deposits, China, the
new world leader in gold production, has proven
an elusive place for most. There are a few
foreign companies operating relatively small
deposits, including Australia's Sino Gold Mining
Ltd. as well as Canada's Jinshan Gold Mines Inc.
and Eldorado Gold Corp., but major Western gold
producers have had little success in the
Barrick has had an office in Beijing since 1993
but has no mines in China.
"We have been there 15 years and we haven't
found anything big enough geologically that
makes sense," Alex Davidson, Barrick's executive
vice-president in charge of exploration and
corporate development, said in a phone interview
Barrick has turned to places like Tanzania to
replenish reserves, but has wrestled with labour
problems that hampered production last year at
one of its mines in the east African country. (Barrick
fired the mine's entire work force but has since
hired back more than half the workers.) Among a
slew of development projects is a massive gold
and copper project in Pakistan, where violence
and political unrest marred recent elections.
THE LONG-TERM VIEW
In Russia, a lack of large-scale deposits has
not been the problem. A survey of mining
companies conducted by the Fraser Institute
found that Russia ranked No. 1 out of 68
countries in terms of mineral potential.
However, it came second-to-last when it comes to
regulatory duplication and inconsistencies and
ranked 62nd in terms of stability of policies,
narrowly besting the Congo and Mongolia but
trailing behind nations like Honduras, Ecuador,
Bolivia, Indonesia and China.
Russia, where an election tomorrow is expected
to see Vladimir Putin's handpicked successor
Dmitry Medvedev anointed president, is
considering legislation that would deem all
large-scale gold deposits "strategic assets."
The law would prohibit foreign companies from
controlling major mining operations. There have
also been concerns that Russia's nationalization
of oil and gas assets, in which major Western
energy firms transferred ownership of assets to
state-controlled Gazprom, could be repeated in
the mining sector.
Political issues left Barrick so frustrated that
it largely abandoned the former Soviet Union in
2006, shuffling its Russian exploration assets
into producer Highland Gold Mining Ltd. for a
minority stake in the company.
"I don't think it's possible for a company the
size of Barrick to go into Russia and find a big
deposit," Mr. Davidson said.
Turning 51 this month, Mr. Burt takes a longer
view. He has been a part of the mining business
for more than 20 years, first as an investment
banker and as an industry executive for the past
six. In 1985, he joined the former brokerage
house Burns Fry, specializing in mining sector
deals. In 1998, Deutsche Bank tapped him to
create a global mining team until low
commodity prices led the brokerage giant to
abandon the effort two years later.
In 2002, he came out of "retirement" to join
Barrick. He spent much of his time in Russia and
led the gold giant's foray into the country.
Given the chance to skipper the Kinross ship
instead of "being an admiral on an aircraft
carrier" at Barrick, he made the switch.
Now Mr. Burt is heading a company with a stable
of mines centred in what he believes are some of
the world's most promising gold mining regions.
He won't say where Kinross will look to expand
next, but he certainly isn't ruling out a deal
in Russia with a local partner.
"Russia, if you know your way around, is a
global mining power that is on the come," he