With prices down and higher costs cutting into margins – already slim at many low-grade mines – explorers that once boasted about the size of their deposits are now wooing investors with tales of high-grade zones.
But Letwin, who was touting low-grade gold last year, before spot prices dropped more than 20 per cent, sees no reason to change his tune.
“I don’t care who you are – we are all migrating to lower grade,” he said in an interview. “It’s just a fact of life.”
Iamgold’s operations in Africa and South America have relatively low concentrations of gold. At the Rosebel mine in Suriname, for example, the reserve grade is one gram per ton.
That is not far off the average reserve grades of the senior producers, but unlike some of those companies’ mines, Rosebel and Iamgold’s Essakane mine in Burkina Faso do not produce silver, copper or other valuable minerals that are often recovered with gold.
“Given that we’re a low-grade operation, we have to be the be the best that we can be, so we’re moving heaven and earth to do that right now,” said Letwin.
Iamgold has been pushing to improve productivity, using tactics like hot seating, which minimizes the time that equipment is left idle. Second-quarter adjusted earnings fell, but the company lowered its cost forecasts for 2013. It reports third-quarter results on Nov. 5.
Letwin joined the company in 2010 from oil pipeline company Enbridge Inc., a somewhat unusual background in an industry run by mining finance specialists, penny stock promoters and geologists.
He wrote a research paper about his strategy last December, called “Condemned to Excellence.” Drawing parallels between the development of low-grade gold and the oil sands, he argued that miners would have to focus on controlling operating costs to run low-grade mines throughout the business cycle.
The conventional wisdom is that average grades fall during good times, because high prices make marginal deposits profitable, and then rise again in weaker markets, as lower-quality mines are idled.
Some deposits with low grades can be reinvented as higher-grade assets, with mines designed to exploit richer areas and treat the rest as waste. But Letwin says he is among those who believe grades are falling in part because the number of untouched high-grade deposits has dwindled.
He said grades may rise briefly in the tough market but that over the long run they will fall.
Letwin’s paper cites data from Metals Economics Group showing that there were 69 “significant” – more than 2 million ounce – gold discoveries between 2000 and 2011, down from 120 in the previous decade